Apple Bull Says Trade Slump Creates a Buying Opportunity
(Bloomberg) -- Apple Inc. shares have tumbled in recent trading days, pressured by uncertainty related to U.S.-China trade tensions, but the weakness has created a ``particularly attractive buying opportunity,'' according to BofAML.
The firm reiterated its buy rating and $230 price target on the iPhone maker, writing that the stock already reflected the potential impact of rising tariffs.
If iPhones sold in the U.S. were subject to a 25% tariff, analyst Wamsi Mohan wrote, the net impact would result in a ``9% hit to EPS on iPhones and below 15% for all products.'' Because the stock has already declined 12% from a recent peak, he argued, the impact could already be priced into shares.
Beyond the trade issue, BofAML praised the company's ``solid risk-reward, continued capital return, and optionality of a large cash balance.''
Apple shares rose 0.6% on Tuesday; the stock is coming off a three-day decline.
Earlier on Tuesday, Wedbush estimated that trade could result in the production costs for the iPhone rising 2-3% on the back of higher costs for input materials like lithium batteries. Under a ``more draconian scenario'' with additional tariffs, expenses could escalate ``by roughly 10%+ over time.''
Last week, Morgan Stanley calculated that Apple's fiscal 2020 earnings could drop by about 23% in a worst-case trade scenario.
BofAML's optimism was a somewhat rare expression of bullishness for the company. Last week, Bernstein warned that the stock looked ``as expensive as ever'' following gains in 2019.
©2019 Bloomberg L.P.