On Friday, Jefferies maintained a Hold rating on Apple Inc. (NASDAQ:AAPL) shares with a steady price target of $211.84. The firm's analysis suggests that potential tariff hikes proposed by Trump could impact Apple's gross margins (GM) by 3.0-6.7 percentage points and reduce the company's discounted cash flow (DCF) value by approximately 5% to 10%, assuming there are no changes in average selling price (ASP) or volume.
The analysis by Jefferies considers the possible exemption of Apple from import tariffs, similar to the previous Trump administration. Despite Apple's efforts to diversify its production outside of China, only about 10% of iPhone production has been relocated. The firm's scenario analysis focused on the iPhone, as it is Apple's major revenue contributor, accounting for 52%.
In the worst-case scenario, where a 60% tariff is applied to all non-US content of the iPhone, the impact on Apple's consolidated GM could reach 6.7 percentage points. However, due to only 30% of iPhones being sold in the US and 27% of Apple's revenue coming from services, the overall effect would be less severe.
In a less extreme scenario, with a 60% tariff on Chinese content and 10% on other non-US content, the GM impact is estimated at 3 percentage points, with a 5% decrease in DCF value.
Jefferies also highlighted the challenges of replicating Apple's established supply chain and skilled workforce outside of China. Other countries, such as India and Indonesia, are increasingly demanding local production, which could exert long-term margin pressure on Apple and its supply chain. The potential tariffs might be the beginning of rising costs due to the shift towards localizing production.
In other recent news, UBS maintained a neutral rating on Apple, citing shorter wait times for high-end iPhone models. The firm estimates a sell-in of 78 million units for Apple's December 2024 quarter, mirroring last year's figures.
Meanwhile, Apple and Arista Networks (NYSE:ANET) were reaffirmed as top picks by Citi due to their strong market presence. Arista Networks reported a 20% year-over-year increase in revenue for Q3, reaching $1.81 billion, and anticipates a 15% to 17% revenue growth in 2025.
Furthermore, Taiwan Semiconductor Manufacturing Co. (TSMC) is continuing its $65 billion investment in constructing new manufacturing facilities in Arizona. Arm Holdings (NASDAQ:ARM)' revenue forecast matched Wall Street expectations, resulting in a 4.5% decline in its stock price. The company expects third-quarter earnings per share to be in the range of 32 to 36 cents.
In regulatory developments, Apple is set to receive a fine from European Union antitrust regulators under the new Digital Markets Act. The specifics of the fine and the practices leading to this action have not been disclosed. Finally, Evercore ISI maintains a positive outlook on Apple, reiterating its Outperform rating and a $250.00 price target for the tech giant's shares.
InvestingPro Insights
As Apple navigates potential tariff challenges, InvestingPro data offers additional context to the company's financial position. Apple's market capitalization stands at an impressive $3.45 trillion, reflecting its dominant position in the technology sector. The company's P/E ratio of 37.31 suggests that investors are willing to pay a premium for its shares, which aligns with Jefferies' Hold rating and the potential risks associated with tariff impacts.
InvestingPro Tips highlight Apple's financial strength and market position. The company has raised its dividend for 13 consecutive years, demonstrating a commitment to shareholder returns. This consistent dividend growth could provide a buffer for investors in the face of potential margin pressures discussed in the article. Moreover, Apple is noted as a prominent player in the Technology Hardware, Storage & Peripherals industry, which underscores its ability to navigate complex supply chain issues.
However, it's worth noting that 16 analysts have revised their earnings downwards for the upcoming period, which may reflect concerns about future performance, possibly including the tariff risks mentioned in the article. For investors seeking a more comprehensive analysis, InvestingPro offers 13 additional tips that could provide further insights into Apple's financial health and market position.
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