Analyst: Apple’s iPad Mini Strategy A Catalyst for $780 Share Price Target

UBS analyst Steve Milunovich thinks the iPad mini will cannibalize about 25 percent of the sales of the full-fledged iPad, but is impressed that Apple (NASDAQ:AAPL) is keen on not giving up its competitive advantage in the tablet space.

“Although Apple dominates the tablet market, its actions suggest that competitive positioning is on management’s mind,” Milunovich wrote in a note to clients. “A fourth-generation 10-inch iPad was introduced with modest improvements, indicating a quick release schedule to keep competitors on their heels. The iPad mini blocks rivals by filling the gap between 4-10 inch screens. Critiques will focus on specifications, but for many potential buyers the brand is critical.”

Apple has been a huge winning stock pick for Wall St. Cheat Sheet Newsletter subscribers. Don’t waste another minute — click here and get more of our CHEAT SHEET stock picks now.

While Milunovich was surprised, like many others, by the relatively high entry-level price that Apple chose to go with for its smaller tablet, the analyst said the company was right in seeking to protect its high margins. The iPad mini starts at $329, while the seven-inch tablets of Google (NASDAQ:GOOG) and Amazon (NASDAQ:AMZN) start at $199.

“The pricing of the mini was toward the higher end of expectations, protecting margin and Apple’s premium brand,” Milunovich wrote. “Google and Amazon underprice the mini and have different models in driving non-hardware revenues. Apple’s larger screen and higher quality device seem worth the premium to us. We assume the mini cannibalizes existing sales by about 25 percent and that the majority will be incremental.”

Milunovich has a buy rating on Apple and a $780 price target.

Don’t Miss: Where Are Apple Shares Headed After iPad Mini Launch?