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Apple: Trade War Escalates, Brokerages Are Cautious

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May. 20 2019, Updated 9:53 p.m. ET

Trade war

CNBC reported that Nomura Instinet has lowered Apple’s (AAPL) target price by $5 to $175. The brokerage maintained its “neutral” rating. In a note to clients, analyst Jeffrey Kvaal said, “The renewal of China trade tensions are a likely near-term negative for Apple.” He added, “A 25% tariff on device imports a pain any way they slice it.” Kvaal also said, “Trade tension hurt China iPhone demand this winter; we would assume the same would apply again.” The brokerage lowered Apple’s 2019 EPS estimate from $11.50 to $11.39.

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Apple

Apple is exposed to US-China trade tensions. If President Trump imposes a 25% tariff on all of the imports from China, Apple would see its costs increase. The company would have to decide between absorbing the cost hike or partially or fully passing the higher costs to consumers. Earlier this year, Apple lowered the prices in some of its international markets amid the strong US dollar.

Apple stock fell sharply at the beginning of the year after it lowered its guidance due to China’s slowdown. NVIDIA (NVDA) said that China’s slowdown is hurting its earnings. However, Apple has risen 21.5% YTD (year-to-date) based on the closing prices on May 16. The SPDR S&P 500 ETF (SPY) and the Invesco QQQ Trust (QQQ) have risen 15.6% and 20.1%, respectively, YTD.

Huawei

After President Trump’s action against China’s Huawei, Apple could also face backlash from Chinese consumers. In the past, Chinese consumers targeted products from South Korea amid the diplomatic brawl between China and South Korea.

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