The strength of Apple Inc.’s (AAPL) iPod business has carried over into its computer business, and we expect Macintosh (Mac) to continue taking share from traditional PC’s as consumers become more familiar with Apple products and enjoy the enhanced media capabilities.

With a strong new product pipeline for 2008, including iPhone 3G, MacBook Air, Mac Pro, iTunes Movie Rentals, and major software upgrade and developer platform for iPhone 2, we believe the stock deserves a premium valuation to its peer group. The new iPhone3G should drive increased share of the smartphone market.

However, we are cautious on consumer spending going into 2008, and believe the market for AAPL’s successful iPod line to be slow over the next several years. We therefore maintain a Hold rating on AAPL shares.

At its current price of $175.27 per share, Apple’s stock is trading at 33.9x our fiscal 2008 estimate of $5.17. We set our six month price target at $184.00. This represents a P/E multiple of 35.6x our fiscal 2008 estimate, which is still a premium to the industry, but more accurately reflects the current outlook.

Read the full analyst report on AAPL