Apple Faces Struggles as Analysts Downgrade Stock Rating

Apple Stock Rating Downgraded by Jefferies Analysts

In an unexpected turn of events, Jefferies analysts have revised their stock rating for Apple Inc (NASDAQ: AAPL) from Hold to Underperform. This decision signals a growing concern regarding the tech company’s upcoming fiscal first quarter report. Analysts foresee Apple missing both its earnings and guidance targets, leading to a decline in share value. On the announcement, Apple’s stock experienced a slight dip of around 1% in premarket trading.

Adjustments to Price Target

Analysts have also slashed their price target on Apple shares from $211.84 to $200.75, indicating a potential downside of 13% from the recent closing price. This caution reflects a broader trend of disappointing sales, particularly focusing on the iPhone segment. Weak performance in iPhone sales, particularly for the new iPhone 17 and 18 models, raises alarms among investors.

Weak iPhone Sales Impacting Outlook

As highlighted in their report, Jefferies analysts attribute their bearish expectations to a variety of factors, including weaker than anticipated iPhone sales. They project that Apple will not only fall short of its anticipated 5% revenue growth for the first quarter but will also provide a modest forecast for the subsequent quarter, suggesting only low single-digit revenue growth.

Revised Forecasts and Shipment Projections

The analysts have adjusted their forecast for iPhone shipments from a previously expected growth of 1% to an anticipated decline of 2%. Data from the International Data Corporation (IDC) indicates that iPhone shipments may have decreased by approximately 4% year-over-year in this timeframe. This shift is supported by alarming trends in China, where iPhone sell-through during the quarter reportedly plummeted.

Impacts on Other Apple Products

Not only are iPhone sales under scrutiny but the conditions for other Apple products such as iPads and MacBooks are also gloomy. The overall sluggishness in consumer electronics has contributed to this challenging landscape. The downgrade alerts investors to the potential disappointment regarding future earnings guidance for the March quarter, further compounded by new policy changes affecting government subsidies in key markets such as China.

Concerns Over New Models

Jefferies analysts also express skepticism about the upcoming SE4 iPhone model, suggesting that it might not meet market expectations. They believe the competition for the SE4 will primarily come from used models of iPhone 13 and 14 rather than Android devices or newer iPhone versions. According to the team, Apple’s focus on integrating AI into smartphones may not draw consumer interest, particularly in the Chinese market.

Near-Term AI Outlook in Smartphones

The team at Jefferies underscores that the near-term prospects for AI features in smartphones are less optimistic than anticipated. A survey reveals that many US consumers find AI functionalities in smartphones to be lacking in usefulness. There are also concerns regarding potential delays in Apple’s advanced packaging roadmap, necessary for enhancing AI capabilities in upcoming devices.

Future Earnings Forecast Reduction

In light of these troubling indicators, Jefferies has revised its earnings per share (EPS) forecasts for Apple downwards by 2% for the upcoming three years. The EPS estimates for fiscal year 2025 (FY25) and fiscal year 2026 (FY26) now sit about 4% below consensus, contributing further to a cautious sentiment among investors. Analysts warn that even with new iPhone form factors expected over the next two years, volume growth might remain tepid if AI advancements take longer than projected to become impactful.

Frequently Asked Questions

What prompted Jefferies to downgrade Apple's stock rating?

Jefferies downgraded Apple’s stock due to expectations of missed earnings and guidance targets, primarily driven by weaker iPhone sales.

What is the new price target set for Apple stock by Jefferies?

Jefferies has reduced the price target for Apple stock to $200.75 from $211.84.

How do analysts view the outlook for future iPhone sales?

Analysts project a decline in iPhone shipments, with expectations of a 2% decrease in fiscal year 2025, reflecting current market trends.

What are the concerns regarding the SE4 iPhone model?

Analysts question the demand for the SE4 model, suggesting it will mainly compete with older iPhone models rather than new devices.

What is the impact of AI on Apple's future?

The near-term outlook for AI capabilities in smartphones appears subdued, with consumers not finding current AI features particularly beneficial.

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