UPDATE 1-RESEARCH ALERT-Bernstein upgrades Apple to outperform

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Oct 13 (Reuters) - Sanford C. Bernstein upgraded Apple Inc (AAPL.O) to "outperform" from "market perform" on valuation and said the company's short-term financials are likely to remain relatively healthy despite economic weakness.

However, the brokerage slashed its price target on the stock to $135 from $175.

Apple shares closed at $96.80 on Nasdaq on Friday.

"Investors appear to be valuing Apple on an earnings multiple, rather than on cash flow, which fundamentally undervalues the company given the huge deferred revenue growth associated with the iPhone," analyst A.M. Sacconaghi said in a note to clients.

Bernstein estimates that the iPhone alone will add between $2.25 and $3.40 a share to cash flow above earnings in fiscal 2009.

Apple's secular long-term growth story remains intact, the brokerage said, adding that it sees opportunities for the company in personal computers, smart phones and AppleTV. (Reporting by Santosh Nadgir in Bangalore; Editing by Mike Miller)