iPhone Demand & China: Why Jefferies Cut Apple's Price Target

In a report issued Monday, Jefferies analyst Sundeep Bajikar and his team reiterated a Hold rating on shares of Apple Inc. AAPL, while trimming their price target from $135 to $130. The new price taget seeks to reflect the macro demand uncertainty for iPhone, especially in China, and the “incremental loss of investor confidence in Apple's ability to grow.” Earnings estimates, however, remained unchanged, still below the Street's.

Shares of Apple are tumbling on Tuesday trading. While the experts believe  this correction is probably overdone, they assure they could become more constructive on the stock if investor expectations fell (driving a selloff in the stock) and/or the company showed proof of progress in brand fortification via new product categories like the Apple Watch or Car, or advances in its Cloud Services business – noting that this would relieve some of the pressure exerted by iPhone/China sentiment near-term.

Jefferies’ checks in Asia suggest Apple is profiting from brand power, and “the component supply chain remains optimistic about iPhone's ability to take share.” Nonetheless, industry watchers have expressed some concerns regarding the recent China stock market correction. The analysts see potential downside of up to 5 million units to their December-quarter iPhone estimate of 75.5 million (above the Street’s estimate of 75 million).

The firm is modeling EPS of $9.06 on revenue of $232.4 billion for fiscal 2015, and EPS of $9.70 on sales of $244.9 billion for 2016.