Jefferies Says Apple's Key Question May Be: Is China Brand Power Sustainable?

In a report published Wednesday, Jefferies analyst Sundeep Bajikar maintained a Hold rating and price target of $135 on

. The company has been benefiting from brand power, which the analyst believes takes focus away from the technology/value driven consumer buying decisions, especially in China. "We could become more constructive with higher confidence in the sustainability of brand power," analyst Bajikar stated. Apple reported its June quarter results ahead of the consensus forecasts, although the results and guidance missed the "buy-side expectations," especially the iPhone shipments. This led to a sell-off in the stock, after market. The performance of both iPad and Apple Watch also came in below expectations. While the September quarter guidance is more or less in line with expectations, it does point towards a year on year deceleration, which could adversely impact the stock valuation in the near term. According to the Jefferies report, "We believe Apple is trying to accelerate its transition from a tech brand to a hybrid tech-luxury-fashion brand, and the process may require the introduction of new product categories, as well as further changes in retail/merchandising." Checks at MWC-Shanghai suggested that the company was facing intense technology competition from lower priced Android smartphones. However, the checks also suggested that consumers in China preferred the iPhone over other brands, including lower priced domestic options, due to the company's superior brand image. The analyst believes that the sell-off would make the stock increasing attractive in the stock due to declining expectations.