US Treasury Secretary Steven Mnuchin struck a positive tone about the US/China trade battle on Wednesday, which pleased Apple (AAPL) investors. Apple has been under the cloud of this trade war for the last few months, with much of their production and supply chain based in China. Mnuchin’s said that a US/China trade deal was “90 percent” complete, and he believes that “there’s a path to complete this” at the G20 Summit in Japan this week when Donald Trump and Xi Jinping meet.
Last week, Apple formally displayed its displeasure with the geopolitical situation when it formally asked the US government to not accelerate its tariffs on goods made in China. They also told the US Trade Representative that the government’s actions would hurt its global competitiveness. One month ago, Goldman Sachs analysts wrote that there is a 29% downside risk to Apple’s earnings due to the possibility of the US/China trade war escalating further.
Wedbush analyst Daniel Ives believes that Wall Street has priced in Apple’s worst-case scenario with this trade-war, and after these positive comments he maintains his Outperform rating on the stock, with a $235 price target. (To watch Ives' track record, click here)
Ives believes that continued tariffs could reduce earnings by 10% to 15% over the next few years, but the seemingly strong possibility this overhang is removed is a fantastic sign for the tech giant and its investors.
How much upside does Ives foresee in the stock if everything goes well? Ives thinks that “a resolution to the China tariff situation could add between $20-$25 per share to Apple's stock over the coming months.” This is due to the margin increases from the tariff reduction for phones sold in the US, and the significant importance of the Chinese market to Apple going forward with a saturated US market that has grinded iPhone sales growth to a standstill.
Overall, AAPL stock had 15 bullish analysts in its corner over the last three months, 15 analysts playing it safe on the sidelines, and only two bears who think that the valuation on Apple stock is beyond crazy. The average price target on AAPL is $212.90, representing nearly 7% upside from where the stock is currently trading.
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