Wedbush’s Daniel Ives is hoping it’s all smoke and no fire. President Trump discussed with the Wall Street Journal the possibility of putting – for the first time — a tariff on Apple (AAPL) iPhone and laptops imported from China, hinting at a 10% additional tariff. Initially, iPhones produced at the Foxconn factory in China were supposed to be untouched by tax, but the president made it seem otherwise. Starting in January, there is supposed to be a tax of imported goods for China, which Trump announced months ago. Now he suggests he could raise that tariff to 25%. If Trump executes the plan soon, it could be just a handful of days before he meets with China’s president Xi Jinping for the international G20 businesses summit. This news, coupled with a disappointing month of weak Apple metrics and soft demand for the iPhone XS/XR is the last thing the Street will want to hear.
“While we ultimately believe this is all part of a broader negotiation with China as talks heat up over the next week, now Cook and Apple find themselves squarely at the center of the tariff talks which were previously background noise as investors try to gauge what a potential 10% tariff on iPhones and other products would do to demand and unit growth over the next 6 to 12 months if ultimately imposed. The reality is Apple and Cook are firmly implanted in China as a core production factory and ultimately we would not see this dynamic changing in the foreseeable future. With ASPs for the iPhone in the $800 range and consumers clearly price sensitive around higher smartphone prices the last thing Cook and investors want to see is additional tariffs added to iPhones and impacting demand drivers at this crucial growth juncture for the company,” Ives comments.
The analyst says he’s going to wait and see if the talk is more “bark than bite,” though he suggests Apple shares might take a hit in the meantime, as investors have already been pulling out of Apple. Nevertheless, Ives maintains his Outperform rating with a price target of $310, which shows a 78% upside for the stock. (To watch Ives’s track record, click here)
For now, the Street considers AAPL a Moderate Buy. TipRanks surveyed 35 analysts about the iPhone-maker and 21 are bullish, 13 are sidelined and one is bearish. The consensus price target is $234.88, which shows an upside of about 36% from where the stock is currently trading. (See AAPL’s price targets and analyst ratings on TipRanks)