Is Apple's financial report going to be bad? Jefferies, Wedbush, and the market are "singing a different tune"

According to Zhitong Finance APP, Apple (AAPL.US) will release its latest quarterly earnings report after the U.S. stock market closes on Thursday. The market expects the company's Q3 sales to be $89.1 billion, a year-on-year increase of 3.9%; earnings per share are expected to be $1.42, a year-on-year increase of only 1.4%. Despite market concerns that Apple's profit growth has "cooled off," Jefferies and Wedbush still believe the company will report impressive results.

Jefferies reiterates a "Hold" rating on Apple, with a target price of $188.32.

Led by Edison Lee, Jefferies analysts expect strong performance for Apple in the June quarter, citing robust demand for iPhones, which is also confirmed by new data from U.S. telecom companies.

Data released last week by the three major U.S. telecom companies showed that total device sales increased by about 22% year-on-year, significantly accelerating from 6% in the first quarter of 2025, reaching a new high in nearly six quarters.

Lee stated, "Telecom operators indeed attribute this strong performance to the consumer demand pull effect driven by pricing policies. We believe this strong trend is most beneficial for Apple, Samsung, and Motorola, as these brands accounted for 91% of U.S. smartphone sales in 2024."

Jefferies again expects iPhone shipments in the June quarter to grow by 8% year-on-year, a forecast higher than the 4% and 1.5% increases predicted by Counterpoint and IDC.

Jefferies also noted that the price of the iPhone 17 may increase, although the increase is not enough to prompt a re-rating of the stock.

Lee's team expects the prices of the iPhone 17 Slim/Pro/Pro Max to rise by $50 (the base model remains unchanged), an increase of 4% to 5% compared to last year.

Lee believes that the average bill of materials (BOM) cost for the iPhone 17 will rise by $20 to $25. The impact of tariffs has already been felt before the finalization of reciprocal tariffs on China and India in the U.S.

Analysts added that assuming 40% of the iPhone 17 series sold in the U.S. is produced in China, the tariffs would increase costs by 8% based on current tax rates. Analysts stated that even if Apple raises prices globally to offset the impact of tariffs, this would still mean a cost increase of 2.5%, or nearly $25.

Therefore, analysts pointed out that a price increase of $50 (excluding the base model) may barely offset the aforementioned cost increases.

Lee's team stated that supply chain surveys indicate that Apple plans to produce 18% of the iPhone 17 (all four models) in India in the second half of 2025, with this proportion rising to 25% by the first half of 2026 and to 30% to 35% by the second half of 2026.

In the long term, the goal is to produce 40% of iPhones in India to meet the demands of the U.S. and India. Analysts added that the remaining 60% will still be produced in China to meet demands outside of the U.S. and India According to data from research firm Canalys, the total number of smartphones manufactured in India has increased by 240% year-on-year, currently accounting for 44% of U.S. smartphone imports, while this proportion was only 13% in the second quarter of 2024.

However, Lee and his team stated that the current yield rate of products in China is 99%, while in India it ranges from 94% to 97%. This means that the cost of assembling an iPhone in India will be 2% to 5% higher than in China. In addition, there will be logistics costs (most components and parts are shipped from China to India), and production efficiency in India may be lower.

These analysts estimate that the tariff differential between China and the U.S. must reach at least 10 percentage points for Apple to have a reason to move factories to India. However, supply chain security and India's localization requirements may prompt Apple to take action, even if this move does not make financial sense.

Wedbus maintains an "Outperform" rating on Apple, with a target price of $270, believing that the company will report impressive results.

Analysts led by Daniel Ives stated that the market will focus on whether Apple can deliver strong financial results, with a slight recovery in iPhone sales in China being particularly critical.

Wedbus analysts noted: "This financial report is just an appetizer before the September iPhone 17 launch, and Cook's statements during the conference call regarding product prospects and demand expectations will be the focus of the market."

Ives and his team predict that as the demand for upgrades among global existing users is released, the iPhone 17 will drive accelerated growth in device sales. Analysts estimate that currently, about 20% of the 1.5 billion iPhones worldwide have not been upgraded for over four years.

Ives' team stated: "But the biggest uncertainty remains Apple's artificial intelligence (AI) strategic layout. While the entire tech industry is focused on the biggest technological revolution in 40 years—the wave of AI commercialization, Apple has yet to take substantial action." It is estimated that a successful AI commercialization strategy could bring a valuation increase of $75 per share for Apple, "time is running out for Cook to break the deadlock."

Analysts warn that the patience of investors and developers is wearing thin, and Apple must achieve substantial breakthroughs in its AI strategy.

Ives' team emphasized: "Cook and Apple's management must face the new era of the AI-driven technological revolution. If they continue to remain stagnant, it could leave a significant strategic blunder in the history of technology."

TipRanks data shows that overall, Wall Street analysts give Apple a "Moderate Buy" rating, with an average target price of $228.11, which is 8% higher than the current stock price level.

As of Wednesday's close, Apple fell 1.05% to $209.05. The stock has declined 16% year-to-date