‘Hold Your Horses,’ Says Jefferies About Apple Stock

Apple (NASDAQ:AAPL) previously benefited from an exemption on import tariffs during Trump’s presidency. With the current administration considering tariffs as high as 60% on Chinese imports and 10% on goods from other regions, the question now is whether Apple will be granted a similar exemption this time around.

Although Apple has made strides to diversify its production beyond China, only about 10% of iPhone manufacturing has shifted elsewhere so far. According to Jefferies analyst Edison Lee, this limited progress stems from the challenges of replicating China’s well-established supply chain and its vast pool of skilled workers in alternative locations such as India and Vietnam.

In theory, Apple could avoid the US tariff issue by manufacturing 30% of its products outside China, (on the assumption the US accounts for 30% of its demand). However, the situation is more complex in practice, as countries like India and Indonesia are increasingly pressuring Apple to establish local production.

So, suppose the company is not exempted – what is the worst-case scenario? Lee believes this would result in the iPhone being subjected to a 60% tariff on its non-US content, amounting to $256 per device or 22% of its ASP (average selling price). However, given that only 30% of iPhones are sold in the US and 27% of Apple’s revenue comes from its Services business, Lee estimates the overall impact on Apple’s consolidated gross margin would be a 6.7 percentage point loss. This would lower the analyst’s DCF (discounted cash flow) valuation by approximately 10%.

In a less severe scenario – where only Chinese-made content is taxed at 60% while other non-US content faces a 10% tariff – Lee projects the impact on Apple’s gross margin would be a 3 percentage point reduction, leading to around a 5% decline in the DCF valuation.

Lee does add that there are three key assumptions underlying his analysis. These are: “1) no additional price hikes (we already assumed a US$50 increase in ASP for iPhone 17 and another US$100 increase for iPhone 18 in our published financial forecasts), 2) no change in our unit sales forecasts (since no change in ASP), and 3) impact on BOM costs for other Apple products the same as iPhone.”

So, down to business, what does this all mean for investors? Lee rates Apple shares a Hold (i.e., Neutral) along with a $211.84 price target, implying the shares are currently overvalued by ~6%. (To watch Lee’s track record, click here)

7 other analysts also remain on the fence here and with an additional 24 Buys and 2 Sells, AAPL claims a Moderate Buy consensus rating. The average price target stands at $245.35, suggesting the stock will climb ~8% above current levels. (See AAPL stock forecast)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.