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Deere, Apple, Retail in Focus as U.S. Releases Fresh Tariff List

Stock MarketsMay 14, 2019 08:20AM ET
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© Reuters. Deere, Apple, Retail in Focus as U.S. Releases Fresh Tariff List

(Bloomberg) -- Deere & Co. on Tuesday joined other companies hit by the U.S.-China trade war, after JPMorgan (NYSE:JPM) cut its rating on the equipment maker due to worsening conditions for U.S. farmers.

The Moline, Illinois-based company is part of a long and growing list of firms confronted with trade-related challenges for their businesses. Cell phones, toys, game consoles and printers were included in a fresh tariffs list released on Monday, and the likes of Apple Inc (NASDAQ:AAPL)., Hasbro Inc (NASDAQ:HAS). and Western Digital Corp (NASDAQ:WDC). may be hurt. President Trump continued to tweet about trade on Tuesday morning, with statements including, “When the time is right we will make a deal with China.”

Deere is down 1.2% in pre-market trading -- but Apple is rising 1.2%, and U.S. equity futures are gaining alongside European stocks as investors assess the prospects for global trade and sift for potential winners. AGCO Corp. may be among those poised to advance, JPMorgan said in a note upgrading its recommendation, as it’s got limited exposure to U.S. row crops and a recent sell-off is overdone.

Here’s a look at some newly exposed U.S. companies:

Mobile Phones

Apple tops the list of U.S. companies that face the biggest impact, as it relies on Chinese labor for the production of nearly all of its devices, including iPhones. That product line alone contributed more than half of Apple’s revenue in the quarter that ended on March 31.

A 25% tariff would cost Apple nearly a quarter of its estimated profit in fiscal 2020, Morgan Stanley (NYSE:MS) said in a research note last week. If Apple chose to pass on the higher cost to customers the price of an iPhone XS would jump by about $160 and hurt demand, analysts led by Katy Huberty wrote.

According to Wedbush analyst Daniel Ives, the current trade situation could result in Apple seeing production costs for the iPhone rise 2%-3%, given the impact that trade is having on input materials like lithium batteries. Under a “more draconian scenario,” where additional tariffs are levied, expenses could escalate “by roughly 10%+ over time.”

Any pressure on the Cupertino, California-based company is likely to have a ripple effect throughout its vast global network of suppliers, which includes Broadcom (NASDAQ:AVGO) Inc., Qualcomm (NASDAQ:QCOM) Inc. and Taiwan Semiconductor Manufacturing Co.

Here’s a list of companies that rank among the highest exposed to Apple, according to Bloomberg supply chain data:

  • Dialog Semiconductor Plc (75% of revenue)
  • Immersion Corp. (69%)
  • Cirrus Logic Inc. (66%)
  • Quanta Computer Inc. (62%)
  • Pegatron Corp. (61%)
  • Japan Display Inc. (55%)
  • Hon Hai Precision Industry Co. (45%)
  • LG Display Co. Ltd (32%)
  • Qorvo Inc. (32%)
  • Jabil Inc. (28%)
  • Taiwan Semiconductor Manufacturing Co. (22%)
  • AMS AG (20%)
  • Broadcom (20%)

Micron Technology Inc (NASDAQ:MU). and Western Digital Corp., which supply memory chips used in smartphones, could also be affected.


Retailers may face earnings-per-share declines of 10%-30% or worse, Cowen’s Oliver Chen wrote in a note, as they’re “unlikely to be able to pass on all of potential cost of goods sold increases.” He sees “faster turning” retailers as among the first casualties, while “slower turning retailers will have more time to figure out alternative strategies.” Cowen flagged L Brands Inc (NYSE:LB)., American Eagle Outfitters (NYSE:AEO) Inc., and Gap Inc (NYSE:GPS). in the specialty space.

On the other hand, value-oriented retailers may benefit from trade tension as shoppers get increasingly squeezed. That may help Walmart (NYSE:WMT) Inc., Costco Wholesale Corp (NASDAQ:COST). and Target Corp. (NYSE:TGT), along with Burlington Stores Inc., TJX (NYSE:TJX) Cos., and Ross Systems Inc. Planet Fitness Inc. may get a boost too with “more consumers preferring deep value given its affordable membership.”

Goldman’s Christopher Prykull reiterated buy ratings on Dollar Tree Inc (NASDAQ:DLTR). and Five Below Inc. as near-term earnings-per-share impacts may be priced in. Ollie’s Bargain Outlet Holdings, Inc. also got its buy rating reiterated “given limited negative impact from tariffs as well as an opportunity to capitalize on disruptions in other retailers’ supply chains.”

Video Games

Console tariffs will probably dent sales of Sony Corp (T:6758).’s Playstation, Microsoft Corp (NASDAQ:MSFT).’s XBox and Nintendo Co (T:7974). Video game makers such as Activision Blizzard (NASDAQ:ATVI), Electronic Arts (NASDAQ:EA) and Take-Two (NASDAQ:TTWO) could also see revenue suffer as a result.

Nvidia Corp. and Advanced Micro Devices (NASDAQ:AMD) Inc., which make graphics processors used in gaming machines, may also be affected.

Storage Devices

A tariff on solid-state drives could hurt Western Digital and Seagate Technology (NASDAQ:STX) Plc.

Deere, Apple, Retail in Focus as U.S. Releases Fresh Tariff List

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