Jefferies lifts Apple to Hold: ‘Q3 has upside but long-term risks remain’

Jefferies upgraded Apple (AAPL) to Hold from Underperform, raising its price target to $188.32, driven by bullish expectations for Q3FY25, where revenue and EPS are projected to beat consensus by 5% and 9% respectively, primarily due to robust 19% year-over-year iPhone sales growth in China during recent promotions. However, the firm cautioned about persistent long-term risks, including anticipated flattening iPhone unit growth in 2H25 due to limited iPhone 17 upgrades and concerns over the 17 Slim model's features, alongside potential FY25-26 EPS reductions of approximately 7% from tariffs and regulatory pressures on App Store and Google revenue streams.

Analysis

Jefferies has upgraded Apple (AAPL) to Hold from Underperform with a revised price target of $188.32, signaling a more constructive near-term view while maintaining long-term caution. The upgrade is underpinned by expectations for a strong June quarter (3QFY25), with projections for revenue and EPS to surpass consensus estimates by approximately 5% and 9%, respectively. This optimism is fueled by a significant recovery in China, where iPhone sales grew 19% year-over-year during the 618 promotional period, aided by discounts and subsidies. Consequently, Jefferies has increased its June quarter iPhone unit forecast by 9% to 49.4 million. However, this positive catalyst is tempered by significant long-term risks. The firm anticipates iPhone unit growth will flatten in the second half of 2025, citing supply chain checks that point to muted production volumes for the iPhone 17. Specific concerns surround the upcoming iPhone 17 Slim model, which may face weak demand due to its single-camera setup, lower battery capacity, and higher price. Furthermore, Jefferies posits that AI is "not yet a game changer" for Apple and highlights external pressures, including a potential 7% EPS reduction in FY25-26 from tariffs and regulatory threats to App Store and Google-related service revenues.

Key Decisions for Investors

• Consider the potential for a near-term positive surprise in the June quarter earnings driven by strong China sales, which could support the stock until more clarity on tariffs emerges.
• Investors should closely monitor supply chain data and consumer sentiment surrounding the iPhone 17, as the analysis points to a muted product cycle that could cap future growth.
• Factor in the potential for a ~7% EPS reduction in FY25-26 from tariffs and ongoing regulatory risks to high-margin services revenue, as these represent significant long-term headwinds.
• The upgrade to 'Hold' suggests that while near-term downside is limited, a lack of strong long-term catalysts may cap further upside, warranting caution before building new large positions.