Jefferies has turned bearish on Apple (AAPL) stock, downgrading it to Sell from Hold on weak iPhone sales and other headwinds. Analyst Edison Lee from Jefferies lowered the price target for the tech giant’s stock to $200.75 from $211.84, reflecting a downward risk of about 13%. In another unfavorable news on Apple, the company’s iPhone sales in China, the world’s largest smartphone market, declined by 18% in Q4 2024 amid growing competition from domestic players.
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Apple shares were down by more than 1% in Tuesday’s pre-market trading.
Jefferies Downgrades Apple Stock
Lee expects Apple to report disappointing results for Q1 FY25 (scheduled to be announced on January 30) and issue subdued guidance for Q2 FY25 due to weakness in iPhone sales. Moreover, he expects iPhone sales to be impacted by the lack of consumer interest in Apple Intelligence even after its rollout in additional countries and languages by the end of this year.
Specifically, Lee highlighted that his concerns about weakness in iPhone demand have “materialized,” and he now expects shipments to decline by 2% in the December quarter compared to his previous estimate of up to a 1% growth. In particular, he noted the weakness in iPhone sales in China, where its prices remain significantly higher than those of the flagship Android models in the country.
The analyst contended that near-term and mid-term consensus forecasts seem too optimistic, and there could be further downward revision in consensus estimates. Overall, Lee expects Apple to miss its 5% revenue growth estimate for Q1 FY25 and issue Q2 FY25 revenue growth guidance in the low-single-digits range, which is lower than consensus expectations.
The analyst also pointed out AAPL stock’s expensive valuation at a P/E (price-to-earnings) multiple of 32x FY25 earnings estimate and 1.7x FY25 PEG (price-to-earnings-to-growth) multiple.
Apple Loses Ground to Rivals in China
Jefferies’ concerns about iPhone sales seem to be true. According to Counterpoint Research, Apple fell to the third position in the Chinese smartphone market in Q4 2024, with iPhone sales declining by over 18%. The company was China’s top smartphone player in the comparable period last year. Apple lagged behind Huawei and Xiaomi (XIACF) (HK:1810) in the fourth quarter of 2024.
It is worth noting that the decline in iPhone sales in China was steeper than the overall year-over-year decline of 3.2% in the country’s smartphone sales. Domestic players are gaining market share, as Chinese consumers are unable to enjoy AI features on their latest iPhones. According to a Wall Street Journal report, Apple is in talks with Chinese AI companies to establish a partnership for launching Apple Intelligence in this key market.
Is Apple Stock a Buy or Sell?
Amid the ongoing pressures, Wall Street has a Moderate Buy consensus rating on Apple stock based on 19 Buys, six Holds, and four Sell ratings. The average AAPL stock price target of $244.36 implies 6.3% upside potential from current levels. Shares have risen about 26% over the past year.
