Apple's warehouse takes a 'gut punch' from Trump's tariff threat
Shares of Apple Inc. sank again Friday, as President Trump's new China-made tariff plan offers a tech giant, who has to decide whether to eat the extra costs or pass them on to consumers. [19659002] Regardless, Wall Street analysts say the outcome is likely to be bad for profit and iPhone demand, not to mention investors.
stock
AAPL, -2.12%
fell 2.1%, after dropping 2.2% on Thursday just after Trump tweeted his tariff plan.
It has now lost $ 9.02, or 4.2%, and has thrown $ 40.8 billion. in market value, since the stock closed Wednesday at a nine-month high following financial earnings from the third quarter and good direction. Meanwhile, Dow Jones is the industrial average
DJIA, -0.37%
fell 98 points on Friday, after falling 281 points on Thursday. See the snapshot of the market.
Analyst Dan Ives of Wedbush said that customs benefits are "a clear gut punch" to Apple, as it brings back a "dark cloud" over the prospects for iPhone and investor demand.
"After [Chief Executive] Cook & Co. has navigated in significant noise and headwinds the last bulls wanted to see … this was news from the Trump administration as Apple is clearly caught in the DC-Beijing fire department," Ives wrote in a note to clients.
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Ives said that if Apple decides to absorb the extra costs, it will reduce fiscal revenue by about 4% by 2020, based on the $ 12.67 FactSet 2020 EPS consensus, about 51 cents a share, with $ 4.52 billion of Apple shares outstanding as of July 19, it represents around $ 2.29 billion.
If Apple chooses to pass the 10% tariff on to consumers by raising prices, Ives believes it will reduce iPhone demand by about 6 million to 8 million iPhones in the United States [19659002] Although Apple is trying to avoid the tariffs By moving iPhone production out of China, Ives estimates that the company will probably only be able to move 5% to 7% to India and / or Vietnam over the next 18 to 24 months.
"While many US companies are being affected by this latest trade tensions, the" poster child "for the US and the UFC's # 39 trade match continues to be Apple in the eyes of Street, with fears going on of these recent tariffs could significantly increase the cost of iPhones globally and have a major negative impact on street numbers across the board, "Ives wrote.
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The analyst reiterated his assessment of out-of-competition and said, apart from the short-term impact on the stock price, that he believes the impact on production and cost increases are sustainable. His $ 245 rate is about 20% above today's levels.
Bank of America Merrill Lynch analyst Wamsi Mohan's "reverse of envelope math" regarding the customs impact included a more profound scenario.
Estimating expectations that Apple would have sold 50 million iPhones in the United States in fiscal 2020, Mohan presented two possible scenarios:
If Apple decides not to absorb the higher costs from tariffs, and therefore iPhone prices increase by about 10%, he thinks there could be 20% hits for demand, which equates to about 10 million iPhones. Since every million iPhones sold are valued at around 30 cents a share of earnings, the reduced demand can reduce the fiscal 2020 EPS by 30 cents. Adding lower demand for Apple's other products could result in earnings of 50 cents per share, or $ 2.26 billion.
If Apple takes up all the pace from the tariffs, Mohan said he expects a fiscal 2020 EPS headwind of $ 0.50 on 50 million iPhones alone. Adding the estimated impact to other products and services, he estimates the total effect of EPS at 75 cents, or about $ 3.39 billion.
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But even at $ 3.4 billion, it represents only 5.9% of projected earnings next year. Mohan said it should not affect investors too much given expectations that growth in Apple's service business will accelerate.
"In the broader context of the winds that [Apple] have, we see this as a relatively small amount over the next few quarters and would use the withdrawal as a particularly attractive opportunity to buy shares of Apple," Mohan wrote .
