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Expectations rising for Apple ahead of iPhone upgrades

Aaron Pressman

Expectations are rising for Apple (AAPL), as the company’s share price rapidly approaches its all-time high.

The shares closed at $93.94 on Monday, just 7% below the all-time, split-adjusted high of $100.72 from September 2012.

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CEO Tim Cook and his team report results for the company’s fiscal third quarter – what the rest of us call the second quarter – after the market close on Tuesday. Wall Street expects revenue of $37.8 billion and earnings per share of $1.23 (equal to $8.61 if you haven’t quite wrapped your head around the 7-for-1 stock split that took place last month).

That’s based on Wall Street’s expected sales of almost 15 million iPads, about the same as last year, and 34.5 million iPhones, a 10% or so jump. At the same time, competitor Samsung has been struggling to maintain strong sales growth for its Galaxy S5 phone, the leader of the Google (GOOGL) Android crowd. Microsoft (MSFT) hasn’t been able to get much momentum for its Windows phone line.

Already, analyst are raising their Apple price targets. UBS analyst Steve Milunovich on Monday raised his target to $115 from $100 and JMP Securities’ Alex Gauna switched his rating to outperform from market perform, with a target of $135.

Apple has been a tear since three months ago, when it surprised investors with greater-than-expected quarterly gains in revenue and profit. Heading into earnings with ultra-low expectations, the stock jumped 8% that day and 26% overall since.

Thus, there is some risk that Apple could slightly disappoint today – say, if sales in China don’t meet expectations – and the stock could suffer. Chinese media have criticized Apple recently and the government seems to be pressuring phone carriers to scale back on subsidies.

But most of the excitement about Apple – the excitement that’s generating all the analyst action – concerns what’s coming up for the rest of the year. Apple is widely rumored to be releasing a new iPhone with 4.7-inch screen and a possible phablet with a 5.5-inch screen at the end of the summer. And a wearable of some kind, the long-rumored iWatch, could hit by year-end.

A watch-type device could sell 24 million units with a gross margin as high as 50% -- better than the iPhone in its first year, says UBS’s Milunovich.

And that could keep the momentum flowing Apple's way.

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