As large as Apple (AAPL) is, it is no match for geopolitics.
With tensions between the US and China rising, Apple is one of many companies caught in the crossfire. The company’s second-most important market is China, but with the US government recently forcing US companies from working with Huawei, Chinese citizens responded by increasing their support Huawei, at the expense of Apple. Notably, while iPhone shipments declined 30% worldwide in the first quarter, Huawei increased shipments 50%.
But this doesn’t mean you should pull your Apple investment, at least if you ask Wedbush’s analyst Daniel Ives. The analyst maintained his Outperform rating on the stock with $235 price target, which implies nearly 21% upside from current levels. (To watch Ives’ track record, click here)
Ives says China is “front and center,” and believes “if a resolution to the China tariff situation comes to a head starting with G-20 talks in a few weeks this would add between $20-$25 per share to Apple’s stock over the coming months…as this would take away the primary China risk which is a dark cloud over the stock now.” Similar to other companies, while Apple’s long-term isn’t at risk under the tensions, as most expect this to subside soon, many see the stock as a risky short-term play.
China represents a large opportunity with the US tech giant, as Ives estimates 20% of all iPhone upgrades will come from the country over the next 12-18 months. Heading into next month, Ives says, “all eyes will be on any signs of demand weakness out of the…China region in light of,” tensions between the two countries. While the June quarter has “been tracking ‘in line with expectations’ around China iPhone demand,” Ives says there is a “’nervous environment’ across the supply chain.”
While Apple investors want to see the US and China come to a resolution, Ives says “the threats of more damaging tariffs on the way from the Trump administration remains the worry of the Street,” with the potential that the US “levies a tariff on the additional $325 billion of Chinese goods over the coming weeks/months depending on the progress and talks at G-20 meetings” later this month. This “would be more of a potential game changer from the perspective of the incremental costs to Apple and its iPhone production,” with Ives estimating expenses could rise by roughly 10%+.
Though the US-China tensions remain a critical issue for Apple and others, Wall Street still views the company in good light. TipRanks analysis of 37 analyst ratings shows a consensus Moderate Buy, with 19 analysts rating Buy, 17 saying Hold and 2 Selling. The average price target among these analysts stand at $212.21, which represents about 10% increase from current levels. (See AAPL’s price targets and analyst ratings on TipRanks)