Prices will make iPhones more expensive, but Apple Stock remains a winner

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The escalation of the trade war between the United States and China will leave traces on
Apple

Stock and its millions of customers, with higher operational costs and higher prices for the iPhone, warned a Wall Street analyst on Monday in a note. The service sector, however, offers some weight to Apple's shares.

If the administration of President Donald Trump imposes a tariff of 25% on the 200 billion dollars of products imported by China, the cost of manufacture of the iPhone could increase from 2% to 3%, according to the same source . Wedbush Titles analyst Daniel Ives. If the administration imposed additional rates, warned Mr. Ives, expenses could increase "by about 10% or more over time".

This is a big problem for Apple, which has gleaned over 60% of its 2018 revenue from iPhone sales, writes Ives. The smartphone is made in China, where the company relies on the workforce for the production of almost all of its devices. About a fifth of Apple's sales last year came from China.

"Apple and [CEO Tim] Cook finds pressure on both extremes from the point of view of supply and demand, as the company's flagship plant, Foxconn, represents the hearts and lungs of the iPhone franchise, while the China is a vital growth region for society, "wrote Ives.

Nevertheless, Ives has maintained a rating and price target of $ 235 on Apple stock (symbol: AAPL).

"We continue to strongly encourage investors to stay the course on Apple despite the current US / China trading situation, as stock prices are attractive, their current level trading at 14x." the earnings per share of the 2020 fiscal year, to enter a major cycle of the iPhone product, "wrote Ives. "It's important to note that the $ 400- $ 450 billion service sector is relatively immune to trade turbulence and remains one of the key principles of our bullish name thesis. "

Apple's stock is up 1% to $ 187.41 on Tuesday after falling 5.8% on Monday – its biggest one-day drop since January, when the company lowered its forecast of income. Last week, Apple stocks recorded their biggest weekly drop (7%) this year, but thanks to trading on Tuesday, equities still show a 19.6% gain since the start of the year for 2019 .

Last week, Morgan Stanley analyst Katy HubertyApple's profits for fiscal year 2020 could be cut by 24% in the worst possible business scenario.

Write to Jon Swartz at [email protected]