Analyst: Apple Could Take 4% EPS Hit From Trade War Tariffs

Apple Inc. AAPL shares jumped 4% Tuesday after the United States Trade Representative announced the U.S. would be delaying new 10% tariffs on certain Chinese imports, including cell phones, until Dec. 15.

Apple investors breathed a sigh of relief that iPhones and iPhone components imported from China will not be subject to the new round of U.S. tariffs, but Apple still needs the U.S. and China to reach some sort of trade agreement if it wants to avoid a significant earnings hit.

Earlier this month, President Donald Trump threatened to impose a new 10% tariff on $300 billion in Chinese goods not already subject to U.S. tariffs starting on Sept. 1. The new tariffs would have raised import costs for major U.S. companies that rely on goods from China, including Apple.

Apple Earnings At Risk

Wedbush analyst Daniel Ives said Tuesday the new 10% tariffs put between 50 cents and 55 cents in annual EPS at risk for Apple, about 4% of Ives’ full-year fiscal 2020 projected Apple earnings. While Apple investors may be in the clear for the time being, the Dec. 15 deadline will continue to loom if a trade deal is not reached.

Ives says Apple would have to choose between taking the 4% earnings hit or passing on the higher costs to customers by raising iPhone and other device prices by $75 to $100 each in 2020. Apple would likely initially eat the costs and take the earnings hit rather than risk losing between 6 million and 8 million device sales due to price hikes.

“We believe this China overhang has resulted in a $20-$25 hit to Apple's stock with some of that being captured back in this morning's stock rebound,” Ives wrote in a note.

Apple's stock traded around $208.91 per share at time of publication.

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