Apple (AAPL) and other U.S. hardware companies could face big hits to earnings if President-elect Trump slaps high tariffs on Chinese imports, according to Bernstein analysts led by four-star analyst Toni Sacconaghi. Trump has talked about implementing tariffs of between 10-20% on imports in general, but this figure rises up to 60% on goods from China. As a result, Apple could see its gross profits drop by about 13% and earnings per share (EPS) by $1.44 (or 19%) if tariffs go through without price adjustments.
This is because the firm is heavily dependent on Chinese manufacturing. In addition, retaliatory tariffs from China that would tax products sold in the country could make things worse, especially since 17% of Apple’s revenue comes from China.
Another company that could be significantly impacted is Dell (DELL). In fact, in one scenario, Dell could see a severe EPS drop of up to 90% due to its low margins. However, the analysts noted that IBM (IBM) appears to be less affected and estimate that it would see an EPS hit of only 2%. It’s worth noting that, so far, Sacconaghi has enjoyed a 65% success rate on AAPL stock, with an average return of 16% per rating.
Other Tariff Implications
Aside from the impact on profitability, other implications that tariffs may cause include forcing companies to move their supply chains away from China. This trend had already started a few years ago when supply chain issues related to COVID-19 made companies realize that they could not rely solely on Chinese manufacturing. However, the higher tariffs will likely lead to an acceleration of this trend.
Trump has been vocal about his desire to bring manufacturing jobs back to the U.S., and tariffs are part of his strategy. Only time will tell if that will be enough to achieve this goal.
Is Apple a Buy or Sell Right Now?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on AAPL stock based on 23 Buys, nine Holds, and two Sells assigned in the past three months, as indicated by the graphic below. After a 24% rally in its share price over the past year, the average AAPL price target of $245.06 per share implies 9.3% upside potential.
