President Trump called off new tariffs before meeting with Xi Jinping at the G20 meeting in Osaka this week, and Apple (AAPL) is a clear winner in the wake of this news. With the prominence of the iPhone in America, Trump has repeatedly criticized Apple for producing and assembling most of its products in China and has attacked the company’s supply chain with tariffs.
The tariffs President Trump called off totaled $325 billion, and although the rifle was aimed at China, Apple would have been in the line of fire. Last month, a few of the biggest companies in the US – Apple, Microsoft, and Intel – filed complaints with the US Trade representative, requesting the tariffs be reworked to mitigate their impact on their businesses. Prior tariffs primarily focused on intermediary goods, which left consumer goods such as phones, computers, and televisions largely untouched by tariffs. However, this round of tariffs would not make that exception, and Apple would have likely been forced to raise prices to maintain margins on some of their most popular products. Apple has evaluated shifting some of its manufacturing and assembly facilities outside of China with the recent geopolitical conflict, but that would take a few years and the damage would be already done. Further, smartphone assembly is challenging and requires skilled human labor, which can not easily be found in other countries for the same price as in China.
In the wake of the cancellation of this new round of tariffs, Wedbush analyst Daniel Ives maintains his Outperform rating and $235 price target, which implies a 16% upside from current levels. (To watch Ives’ price target, click here)
Ives believes that the tariffs “would have struck at the core of the tech ecosystem,” so logically the removal of these tariffs is a bullish sign for Apple. Ives also thinks that ~$2 of EPS would be shaved off Apple’s stock in 2020 and 2021 with the implementation of the tariffs. With this EPS back on the table, demand is the area that causes concern for many on the street, including Ives. With the patriotic tough talk on both sides of the trade dispute, the Chinese public has appeared to sour on American technology products. Even with this step forward in negotiations, public opinion is unlikely to change quickly.
Ives predicts that $20-$25 per share will be added to Apple’s share price in the next few months following the resolution of the US/China tariff escalation. TipRanks and analysis of 36 analyst ratings on AAPL in the last 3 months show that 19 analysts recommend Buying, 15 Holding, and 2 Selling. The average price target on AAPL is $213.45, which represents a 5.9% upside on the current share price. (See AAPL’s price targets and analyst ratings on TipRanks)