UBS: Trump tariff comments seem like negotiating tactic
From a note to clients by analyst Timothy Arcuri that landed on my desktop Wednesday:
In a WSJ interview published after market close [Monday], President Trump indicated he expects to proceed with stated plans to increase tariff rates from 10% to 25% on $200B of Chinese imports starting in January 2019 and implement tariff on additional $267B of Chinese goods (including iPhones and Mac). Apple is a significant employer in China and this Administration has urged the company to move more manufacturing to the US.
This could simply be a negotiating tactic ahead of the G20 Summit later this week, though we do note that this Administration has proven a willingness to push forward with such actions.
It is unclear whether the incremental tariffs would be at 10% or 25%, but assuming a 10% rate, we estimate an EPS impact of ~$0.33 (~2.5%) on our baseline F2019E EPS of $13.06 assuming implementation in March Q and assuming AAPL would absorb the incremental costs rather than passing them on to consumers.
Maintains Buy rating and $225 price target.
My take: A successful tariff negotiation would be a ray of sunshine after all these weeks under a cloud.