$Apple(AAPL)$ #Apple
About a week ago, I argued why $200 is a great entry point for AAPL stock, $Apple(AAPL)$. The prices have gone up a bit by now, but still attractive. Interest readers can take a look of my original analysis below.
APPLE STOCK is about to release its fiscal year second quarter earnings report for 2025 in less than a week. It is scheduled on May 1, 2025. The company – together with the overall investing landscape – is experiencing material uncertainties. Here, I will divide these uncertainties into two buckets and analyze their impacts on the stock. The first bucket includes changes that can impact APPLE STOCK’s specific operations, particularly the potential changes in tariff rates that can impact APPLE STOCK profitability metrics. The second bucket will include changes that are more macroeconomic and impact the risk premium of APPLE STOCK shares.
As you will see, my overall conclusion is that the risks are already priced in, making APPLE STOCK a solid choice for buy-and-hold accounts at its current price levels of around $200 per share.
As you all know, President Trump has announced new trade policies that could impact APPLE STOCK’s manufacturing and supply chains. The most crucial element here is that China now faces a much higher tariff on its goods imported to the US. This rate may change as I believe both countries are still keeping the door open for further negations. But even if the current rate is implemented in the near term, it could materially impact APPLE STOCK’s profit as a large portion of its manufacturing is based in China. For example, the cost of its iPhones could increase sizably according to various analysts. And a few of them are quoted below:
BBC report (April 10, 2025): Following Trump's tariff increase on China to 125%, the cost for a China-made iPhone 16 Pro Max with 256GB storage would have surged from $1,199 to $1,999, according to estimates by investment banking firm UBS. They estimate a less significant increase on the iPhone 16 Pro 128GB storage - which is made in India - by five percent from $999 to $1046.
Even with the loyalty of APPLE STOCK fans, I don’t expect APPLE STOCK to be able to fully pass on the additional cost to its customers and thus I expect a noticeably margin pressure in its Q2 ER. This seems to be the view of the market consensus too. As an example, the chart below describes APPLE STOCK stock's EPS projection, and my margins estimates. To wit, in the past quarter, APPLE STOCK earned an EPS of $2.40 on a revenue of $124.30B. This resulted in an implied net profit margin of 29.3%. Looking ahead to the upcoming ER, the consensus EPS estimate is $1.61, and the revenue estimate is $94.02B. Assume the same number of outstanding shares as the last quarter, the implied net profit margin is 25.8% for Q2, translating into a margin compression of 350 basis points.
Such margin pressure could persist (for reasons to be detailed later). But I think the current valuation has already priced in such pressure already, which leads me to the discussion of the macroeconomic catalysts in the next section.
The above geopolitical and trade conflicts, besides impacting APPLE STOCK’s specific operations, have also altered a few key macroeconomic parameters. For example, the risk-free rates have decreased noticeably since my last writing. To wit, the chart blow depicts the changes in 10-Year Treasury Rate (I:10YR) since then. As seen, the reading was above 4.6% in Feb 2025. It dipped to as low as 4% in early April and now hovers around 4.4%. Risk-free rates act as gravity on all asset valuation, and I thus expect the current lower rate to better support for APPLE STOCK’s valuation. But APPLE STOCK’s valuation has moved in the opposite direction since my last writing. As seen, its earnings yield has increased quite sharply in this period. It started at around 2.8% at the time of my last analysis and climbed to the current level of 3.08%.
If you are interests in my details, take a look at my YouTube video: https://youtu.be/XnW2c38iBk0
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