Apple gets a rare bearish rating. Why does Jefferies expect the stock to fall 20%?

Apple received a rare "bearish" rating from Jefferies: it downgraded its recommendation on the stock and predicted a 20% drop in quotations. Analysts believe that demand for the iPhone 17 has increased expectations about the prospects of a foldable iPhone, which is expected next year, and immediately warned: sales of the novelty may not meet forecasts. Most analysts on Wall Street do not share the pessimism of Jefferies.

Apple shares may lose value as Wall Street's expectations of the next iPhone - possibly a foldable one - have become overstated, Jefferies said. The investment bank downgraded the recommendation on the securities from Hold ("hold") to Underperform ("below market", corresponds to the recommendation to sell), writes CNBC. This is a relatively rare "bearish" rating for the company's securities, notes Bloomberg.

The stock's target price has been lowered to $205, implying a 20% drop from its Oct. 2 closing level.

"Stronger [iPhone 17] sales have heightened expectations about the device refresh cycle and the prospects for the [iPhone] 18 Fold model," explained analyst Edison Lee.

Apple shares were adding about 0.5% in trading on Oct. 3, and are up only 3.2% YTD.

Jefferies believes that the increase in demand for the iPhone 17 is not due to innovation, but partly to the lower price of the base model. This factor is already reflected in quotations, which has reinforced expectations of strong interest in Apple's first foldable phone. However, Lee warns: the market for foldable devices is limited, and sales of the novelty may not meet forecasts, writes CNBC.

"Reviews and early estimates look positive, but even so, the industry expects annual sales of the foldable device to not exceed 3 million units," the analyst said. He added that without innovative features, an upgrade cycle based on price alone could prove unsustainable and lead to margin pressure.

Among the new additions to the iPhone 17 lineup is the iPhone Air model, positioned as Apple's thinnest smartphone. But according to Jefferies, this design has not resonated with buyers, which also makes optimism on the foldable iPhone a risky bet, Barron's writes.

Even with increased sales projections and a potential $100 increase in the price of the iPhone 18, Jefferies' calculations show: Apple's fair valuation remains largely unchanged.

Analysts cite competition as an additional pressure factor. A key element of the foldable device - the display - echoes Samsung's approach. The Galaxy Z Fold 7, released in the summer, sells for around $2,000, and Jefferies believes it is the high price that limits the potential market, not the form factor itself.

Morgan Stanley analysts, on the contrary, saw the potential for the stock to rise 46% in an optimistic scenario if the launch of the iPhone 18 lineup next year is supported by foldable models and new AI features, including an improved Siri voice assistant. Apple's stock could rise as high as $376 next year under that scenario, according to Morgan Stanley estimates. The base target price for the company's shares analysts raised to $298, which is 16% above the closing price of trading on Thursday, October 2.

Analysts at Seaport Research Partners are also more positive on Apple's prospects. They initiated coverage of Apple stock this week with a Buy recommendation and a $310 target price, implying a 21% upside from its Oct. 2 closing level. Despite stagnant or declining device sales over the past three years, Apple has managed to significantly increase monetization of its user base, notes analyst Joe Goldberg, whose opinion is cited by Barron's.

According to Bloomberg, the consensus recommendation for Apple stock is 3.93 out of 5, making it the least "favorite" in the "Magnificent Seven" after Tesla. About 57% recommend buying Apple shares, while Microsoft, Nvidia and Amazon have over 90%, with bearish ratings being rare, with less than 7% of analysts recommending selling Apple securities.

This article was AI-translated and verified by a human editor