But the fact that investors expect a Verizon iPhone in early 2011 makes its analyst nervous



Source: Oppenheimer

In a note to clients issued early Friday, Oppenheimer’s Yair Reiner addresses the yawning disconnect between Apple’s AAPL fundamentals — the underlying strength of its business — and its share price.

“Apple’s stock has performed admirably this year (up 37% YTD),” he writes, “but it has significantly lagged the improvement in the company’s fundamentals, which have driven FY10 consensus EPS estimates up by 75% since January.”

Why the 38 point discrepancy? Reiner believes the prime factor has been investors’ nervousness about Apple’s size — both in absolute terms and as a percentage of their holdings. But he thinks the last six months may have prepared portfolio managers to get over this “psychological hump.” And he thinks the blowout September quarter he’s expecting could provide what he calls “the catalytic push in the rump for an overdue catch-up trade.”

Reiner has raised his iPhone and iPad unit sales estimates (to 12 million and 4.5 million, respectively) as well as his Apple price target (to $345 from $330) and is advising clients to buy the stock in advance of the company’s Oct. 18 earnings report. Apple, he says, is “not too big to blow it out.”

His one caveat stems from the buzz created by latest Verizon VZ iPhone rumor (see here).

“If there’s one thing making us nervous about Apple right now it’s the mounting expectation that VZ will launch the iPhone in 1Q11. We still don’t see the motivation—for Apple or VZ—for launching a CDMA phone midway through the iPhone 4’s product cycle. A 2H11 release of a new LTE-VZ phone seems much more plausible.”

Among the professional analyst who track Apple, Reiner’s estimates for Q3 were the most accurate. He was outclassed, however, by a couple of amateurs. See Earnings Smackdown: The best and worst Apple analysts.

[Follow Philip Elmer-DeWitt on Twitter @philiped]