Analysts and economists have been scrambling to revise their earnings outlooks for U.S. companies after President Donald Trump’s latest round of trade war tariffs went into effect Sept. 1.
JPMorgan has reduced its 2019 EPS estimate for S&P 500 components from $178 to $177.
Bank of America Merrill Lynch analyst Justin Post said in a Tuesday note that a pair of e-commerce stocks may take an even larger earnings hit.
Post estimates the new 15% tariffs on an additional $112 billion in Chinese imports will have a disproportionately large impact on e-commerce companies that sell a large amount of these Chinese products on their platforms.
The analyst estimates 30% to 25% of the Amazon.com, Inc. (NASDAQ: AMZN) cost of goods sold in the U.S. comes from Chinese imports. As much as 60% of the Wayfair Inc (NYSE: W) home goods and furniture category COGS comes from China, he said.
Price Hikes Coming?
As a result, Post said Amazon would need to raise prices by between 2.1% and 2.6% to completely offset the negative earnings impact of the latest tariffs.
“We expect tariffs to modestly impact both 1P and 3P prices, but given potential substitution on AMZN’s marketplace between goods & similar price increases expected at other retailers, we expect Amazon to maintain (or grow) its share,” the analyst said.
BofA estimates the new tariffs will raise Amazon’s shipping costs by a total of about $2.6 billion.
For Wayfair, the impact of the tariffs will be even higher. Post estimates the company would need to raise prices by an average of 4.6% to fully offset an estimated $453 million in additional costs.
Bank of America has a Buy rating and $2,350 price target for Amazon and a Neutral rating and $159 target for Wayfair.
Amazon shares were up 0.5% at $1,798.71 at the time of publication Wednesday, while Wayfair shares were higher by 7.19% at $117.18.
Assuming the U.S. economy remains steady, consumers should be able to absorb these potential price hikes from Amazon and Wayfair. Investors should pay more attention to how these e-commerce leaders perform relative to peers than how much of a direct hit they take from the trade war tariffs.
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