Apple Analyst: Tariff 'Gut Punch' Is 'Mini Wrench' In iPhone Demand Story

Apple Inc. AAPL is the “poster child” for companies hit by the U.S.-China trade war, and new tariffs announced by President Donald Trump will weigh on shares, but Cupertino should be able to weather the cost increases the new tariffs will likely bring, analysts said.

It might even be a good buying opportunity for investors, thanks to the sell-off that has followed Trump’s tweets announcing new 10% tariffs starting Sept. 1.

The Analysts

Bank of America Merrill Lynch’s Wamsi Mohan reiterated a Buy rating on Apple with a $240 price target.

Wedbush analyst Daniel Ives maintained an Outperform rating with a $245 price target.

The Takeaways 

The new tariff will likely significantly increase the cost of Apple’s iPhones globally and hurt sales, with a “major negative impact on Street numbers across the board,” Wedbush's Ives said in a Thursday note, calling Apple the “poster child” for trade war pain. 

Assuming the tariff are passed on to consumers, the hit to demand could be 6 million to 8 million iPhones just in the United States, the analyst said. 

“After [Apple CEO Tim] Cook & Co. have navigated significant noise and headwinds, the last thing the bulls wanted to see … was this news from the Trump administration, as Apple is clearly caught in the crossfires between D.C. and Beijing,” he said.

“The jury is still out on how this high-stakes poker game plays out over the coming months, although today the tariff news out of left field is a clear gut punch to Cupertino and throws a mini wrench in the iPhone demand story.”

Wedbush forecast a 4% hit to fiscal 2020 earnings. 

Still Bullish

But both Ives and Bank of America's Mohan are bullish on Apple long-term and said the company can weather the storm. Mohan suggested the Thursday sell-off could present an opportunity.

The annualized hit to earnings could be as much as 70 cents, Mohan said, with as much as 50 cents of that coming from iPhone demand issues.

“In the broader context of the tailwinds that AAPL has, we view this as a relatively small amount over the next several quarters and would use the pullback as an especially attractive opportunity to buy shares of Apple,” the analyst said. 

Ives agreed.

"While uncertainty will pressure Apple's stock/multiple, seeing the forest through the trees, the fundamental impact on iPhone production and the potential cost increases are thus far containable in our opinion." 

Apple beat earnings and revenue estimates Tuesday and also issued bullish guidance for the September quarter, though it was before Trump's tariff tweets.

Price Action

Apple shares were down 2.79% at $202.61 at the time of publication Friday. 

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Photo courtesy of Apple.