Big banks say Apple will weather financial storm

Even in the face of a near 18 percent slide in Apple stock value over consumer spending worries, analysts from both Citi and Goldman Sachs on Tuesday reiterated their "buy" recommendations, each confident that Apple's fundamental operations were better than what the share decline would suggest.

Of the two, Citi researcher Robert Gardner is the most explicit in his views. Although he sees computer and iPod-related income dipping by 3 and 12 percent respectively, Gardner explains that iPhone should still fuel overall growth. Mac sales are also expected to keep rising and are predicted to hover between 10 to 20 percent growth in the long run, even if Apple's breakneck pace of roughly 40 percent doesn't continue for much longer.

In the short term, Goldman Sachs' David Bailey adds that his firm believes Apple will have shipped more than 4.26 million iPhones during the summer quarter.

Both Bailey and Gardner also see incidental factors at work in Apple's favor. Prices for individual components, such as flash memory for iPhones and iPods, are continuing to drop and should translate to wider profit margins than expected. The usual holiday sales spike plus Apple's healthy cash flow should also contribute to sustained results, the Citi expert says.

The two analysts stress the potential wildcard of a comprehensive MacBook update that may improve Apple's performance in the next few weeks. Citi cites checks within the industry which indicate that Apple may drop the price of a base MacBook to $1,000 to remain competitive, but which is also more likely to add features rather than chase after lower-cost rivals.

The same bank warns that recent economic turmoil is pushing it to reduce its forecasts for Apple's fiscal 2009, which would now see Apple sell 10.2 million Macs, 50 million iPods and 18.5 million iPhones; Goldman Sachs is less specific but warns that Apple is more vulnerable to slowing home user sales and a more conservative market. Still, Bailey at Goldman insists that much of the blow dealt to Apple on the stock market on Monday was undeserved.

"The recent sell off creates an opportunity as we think Apple will outperform our group through the end of the year," he says. "We think yesterday’s -18% decline more than captures the concerns over Mac growth in a weakening spending environment, making Apple shares attractive at current levels."