Source: Davit Kirakosyan
Raymond James Maintains Outperform Rating for Apple Despite Tariff Concerns
Raymond James recently maintained its Outperform rating and a price target of $250 for Apple (NASDAQ:AAPL). However, the financial services firm also cautioned about the potential detrimental impact of impending reciprocal tariffs on Apple’s earnings by 2025. This warning comes as the United States government explores the possibility of implementing a new tariff policy that could drastically increase the cost of imported goods.
Apple’s Overseas Manufacturing Could Drive Up Costs
Over 90% of Apple’s hardware is produced overseas, with China and India being the primary manufacturing countries. Consequently, the proposed U.S. tariff policy could significantly inflate Apple’s import costs. The policy could impose a combined tariff of up to 54% on Chinese-manufactured products, while products sourced from India could see a 26% tariff. This would create a substantial cost burden for Apple and could potentially reduce its profit margins drastically.
The Potential Impact on Apple’s Earnings
The Americas, particularly the United States, form a significant portion of Apple’s market. In the fiscal year 2024, 43% of Apple’s revenue came from the Americas, with U.S. sales making up about a quarter of its total revenue. Therefore, any policy change that affects the cost of importing goods to the U.S. could severely impact Apple’s earnings. Analysts from Raymond James estimate that if the proposed tariffs come into effect without any exemptions from January 1, Apple’s earnings per share in 2025 could take a hit of up to 25% if they fail to implement countermeasures.
Apple’s Potential Countermeasures
Apple has been diversifying its manufacturing base outside China, which could offer some protection from the tariff-related increase in production costs. However, the most direct way for Apple to offset the potential margin squeeze caused by the tariffs would be to increase U.S. product prices by approximately 30%. This approach, although seemingly simple, carries several risks. It could dampen domestic demand for Apple’s products, given that higher prices generally discourage consumers. Additionally, it could spur retaliatory trade responses from other countries, which could further undermine Apple’s global performance.
Raymond James Awaits Further Developments
Despite these potential challenges, Raymond James is holding its forecasts steady for now. The firm is awaiting further clarity on the scope and duration of the proposed tariffs, as well as Apple’s strategic response to the issue. The coming months will be crucial in determining the future direction of Apple’s earnings and stock price. Any policy changes, as well as Apple’s response to these changes, will provide important clues for investors about the company’s future prospects.
A Final Word
Given the uncertainty surrounding the proposed tariff policy and its potential impact on Apple, investors should monitor the situation carefully. While Apple has a track record of successfully navigating regulatory and market challenges, the potential tariffs pose a significant risk. Investors will need to carefully consider the potential impact on Apple’s earnings, as well as the company’s ability to effectively respond to these changes.