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

Jeran Wittenstein and Felice Maranz
Deere, Apple, Retail in Focus as U.S. Releases Fresh Tariff List

(Bloomberg) -- Deere & Co. and Ralph Lauren Corp. were among companies facing fresh U.S.-China trade war worries on Tuesday.

JPMorgan cut its rating on the Moline, Illinois-based equipment maker due to worsening conditions for U.S. farmers, while Ralph Lauren’s CEO fretted about “sweaters, polo shirts, some of our footwear.” Cell phones, toys, game consoles and printers were included in a fresh tariffs list released on Monday, and the likes of Hasbro Inc. and Western Digital Corp. 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 gained 0.2% in Tuesday morning trading, while Apple rose as much as 1.1%, as U.S. stocks rallied as investors assessed the prospects for global trade and sifted for potential winners. AGCO Corp. rallied as much as 1.5%; JPMorgan in a note upgrading its recommendation said AGCO’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 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 Inc., Qualcomm 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. and Western Digital Corp., which supply memory chips used in smartphones, could also be affected.

Retailers

Ralph Lauren sank to the lowest intraday since January after fourth-quarter total comparable sales missed estimates and amid fears U.S.-China trade tensions will hit the apparel maker’s products, including its iconic polo shirts.

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., American Eagle Outfitters Inc., and Gap Inc. in the specialty space. Gap fell as much as 3.9%, while American Eagle pared losses of as much as 1.3% and L Brands of as much as 1.4%.

On the other hand, value-oriented retailers may benefit from trade tension as shoppers get increasingly squeezed. That may help Walmart Inc., Costco Wholesale Corp. and Target Corp., along with Burlington Stores Inc., 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. 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.’s Playstation, Microsoft Corp.’s XBox and Nintendo Co. Video game makers such as Activision Blizzard, Electronic Arts and Take-Two could also see revenue suffer as a result.

Nvidia Corp. and Advanced Micro Devices 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 Plc.

(Updates share trading throughout.)

--With assistance from Ryan Vlastelica.

To contact the reporters on this story: Jeran Wittenstein in San Francisco at jwittenstei1@bloomberg.net;Felice Maranz in New York at fmaranz@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Steven Fromm

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