Jefferies Downgrades Apple to Underperform: Analysts Predict Weak Earnings as iPhone Sales Decline


In a recent development that has caught the attention of stock traders, Jefferies analysts have revised their outlook on Apple Inc (NASDAQ: AAPL), downgrading the tech titan from a Hold to Underperform. This shift comes as they anticipate that the company will fall short of its earnings and guidance targets in the forthcoming fiscal Q1 2025 report. As a consequence, Apple's shares experienced a dip of about 1% in pre-market trading on Tuesday.
Jefferies has also adjusted its price target for Apple, now setting it at $200.75, which is a noticeable drop from the previous target of $211.84. This new target suggests a potential downside of approximately 13% from Apple's last closing price, raising eyebrows among traders.
The downgrade stems from an assortment of worrisome indicators, primarily centered on weak iPhone sales figures. Analysts at Jefferies have particularly flagged a subdued outlook for upcoming models, the iPhone 17 and 18, citing a lag in artificial intelligence adoption as a key concern. They predict that Apple may miss its revenue growth guidance of 5% for the first quarter and foresee low single-digit revenue growth for the second quarter, which is also below market consensus.
Furthermore, the firm has decreased its forecast for iPhone shipments, shifting from a projected growth of 1% to an expectation of a 2% decline for fiscal Q1 2025. This adjustment is backed by data revealing an approximate 4% year-over-year fall in iPhone shipments during this period. Notably, the drop in iPhone sales within China has been pronounced, while international markets may only achieve marginal growth.
Worryingly, the outlook for other Apple offerings, including iPads and MacBooks, appears grim as well, in part due to an ongoing slump in the consumer electronics sector. Traders should also note that analysts are apprehensive about the guidance for the March quarter, which could further disappoint investors.
Despite some optimism about demand in China, fueled by government subsidies, Jefferies warns that new regulations could limit these incentives, leaving many iPhone models without support. "We doubt consumers will be lured by the SE4's Apple Intelligence features, especially in China," they added.
On the tech front, Jefferies has flagged that the near-term outlook for AI integration in smartphones is lackluster, as a recent survey suggests that U.S. consumers do not perceive smartphone AI as particularly beneficial. Additionally, industry checks have hinted at potential delays in Apple’s advanced packaging roadmap, essential for boosting AI functionalities on their flagship devices. This situation is compounded by slower AI monetization trends, which could dampen expectations for a vigorous upgrade cycle driven by these technologies.
In light of these unfolding developments, Jefferies has also revised its earnings per share (EPS) forecasts for Apple downward by 2% to 23% over the next three years, with estimates for fiscal years 2025 and 2026 now hovering around 4% lower than consensus expectations. Such projections are bound to keep traders on their toes, particularly as they navigate a landscape filled with both challenges and uncertainties.
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