“Stick your neck out and it will get chopped.”

That notion is widely known among Wall Street analysts. They realize it’s a lot safer to keep your earnings and target prices in line with the hoard of other analysts. If you do go out on a limb with bold predictions right before quarterly results are announced, then you’d best be right.

#-ad_banner-#So when Citigroup’s Richard Gardner boosted his target price on Apple (Nasdaq: AAPL) from $480 to $500 on Monday, Oct. 20, just a day ahead of the company’s earnings release, you would have expected such a late-breaking call to be quite accurate. “Our checks suggest strong performance in iPhone, Mac and iPad this quarter,” he wrote on Monday in a note to clients. And he boosted his fiscal 2011 EPS (earnings per share) forecast from $8.14 to $8.54, well ahead of the $7.29 consensus.

Well, Apple not only missed his profit forecast, but the much lower consensus forecast as well, earning just $7.05 a share in the quarter ended September. Gardner is not one to eat crow. Instead, he’s sticking to his guns — and that $500 price target. His big mistake as he sees it: failing to realize that many consumers would hold off buying new phones in September ahead of the much-anticipated launch of the iPhone 4(S) in early October. Rather than look behind, he notes that the new phone is off to a stunning launch. “In just the first two weeks out of a 14 week quarter, Apple has sold more than 1/3 as many iPhones as it sold during the entire previous quarter.”

In effect, Gardner is arguing that investors were mistakenly selling shares on Wednesday (the stock sank by $20). With shares back to the $400 mark, he now suggests “the opportunity is even more compelling.” Why now? Because the holiday season is approaching and he expects Apple to post blowout results in the current quarter. To his credit, this is a company that usually delivers upside, not downside — the actual EPS results were at least 19% ahead of forecasts in the previous three quarters.

And how does he arrive at his $500 target price? By applying a multiple of 11 to his fiscal (September) 2012 EPS forecast of $36 and then adding in Apple’s $85 in cash per share. But this is where Gardner is once again sticking his neck out. He thinks Apple will earn far more in the next new few years than consensus forecasts currently anticipate. For example, in fiscal 2012, his $36 EPS forecast is above the peer group’s $33 forecast. He expects Apple to earn roughly $40 a share in fiscal 2013, while his peers are at $38. And he expects EPS to hit $42 by 2014.

Apple’s bears think this rosy view ignores several clear headwinds. First, Amazon.com’s (Nasdaq: AMZN) potential iPad beater — Kindle Fire — is expected to launch in November at half the iPad’s price. Indeed, Gardner was already overly aggressive in assuming that Apple would sell 14 million iPads in the just-completed quarter. Instead, Apple sold just 11 million. No matter, he thinks Apple will sell 14.5 million iPads this holiday season.

Perhaps of greater concern, demand for Apple’s iPod appears to be waning now that its features are replicated in the iPhone and iPad. The fact that sales in the just-completed quarter fell 27% compared with a year ago is worrisome enough, but Gardner concedes that “the company is not doing a hardware upgrade this year for the peak holiday period.”

Still, Gardner thinks the current quarter will be spectacular simply because the new iPhone appears to be an overwhelming hit. His earnings model calls for 28 million phones to be sold, which appears to be the highest forecast on Wall Street. He figures management’s guidance of $36.7 billion in sales and $9.30 in EPS is “very conservative particularly given the potential to upside for the iPhone shipments.”

Time will tell if Gardner’s persistent bullishness will pay off. Needham’s Charlie Wolf shares his bright outlook, with a $540 price target. Reviewing the quarter, he concedes that the iPhone shortfall caught most off guard, “however, the other metrics were spot on.”

Most other analysts are also quite bullish.

For example:
 

• Sterne Agee — $500 price target. Noting that it’s unusual for Apple to issue next-quarter guidance that is above the analyst consensus: “We believe the company did this to express confidence in its strong pipeline of business, particularly with its new iPhone 4S and iPad still relatively early in its adoption curve.”

• Merrill Lynch — $515 price target. “We remain buyers of the stock heading into perhaps the most successful product launch in company history, with the iPhone 4S.”

• Goldman Sachs — $520 price target. They’re not only bullish on prospects for the iPhone, but also dismiss any looming threats for the iPad: “Apple’s competitive positioning in the tablet market is strengthening with the high-profile shutdown of HP’s (NYSE: HPQ) TouchPad effort, the inability of most Android vendors to offer competitive price points.”

Risks to Consider: This week’s quarterly shortfall proves one thing: analysts’ channel checks, which are surveys of end-user demand, can often be far off the mark. Yet in the absence of such checks, analysts are going with their gut, assuming that the total market for iPhones and iPads will continue to expand. If either of those markets is closer to saturation than these analysts predict, then Apple’s sales, profits and stock price have likely peaked already.

Action to Take –> These are the kinds of trades you should be looking for — a stock that sells off despite perfectly explicable reasons for the shortfall. Indeed, had the new iPhone not been imminently available, Apple likely would have met or exceeded sales and profit expectations in this most recent quarter. Although it is unclear what kind of growth Apple can generate in coming years, it’s almost a given that the current holiday season will be filled with good cheer for the world’s most popular technology company.