Analysts are worried these US stocks could take a hit from tariffs on Mexico

“The proposed U.S.-Mexico tariffs, expected to be implemented on June 10th at 5% and increasing to 25% by October, will have a significant impact on the North American lighting industry. While compromise is still our base case, we think it is prudent to try to frame the potential impact if tariffs move forward. Importantly, several tier 1 lighting OEMs use Mexico as a manufacturing base, thus creating a collective industry impact which we think can result in pricing discipline. China’s Lighting Aspirations: This is key to framing a discussion of potential industry impacts from Mexican tariffs, which would disadvantage Acuity and many of the other U.S. T1 industry suppliers.”

“BC management disclosed that the company’s Marine businesses imported ~$200MM of goods (6%7% of COGS) from Mexico in 2018 (including a full year of Power Products). In a worst case scenario, we estimate the annualized gross Mexican tariff impact to be $10MM$ 50MM depending on the level of tariffs which will start at 5% on June 10th and could rise to 25% by October. However, the impact could be much smaller or nothing depending on the actual tariff rules and treatment of BC’s maquila operations (covers a large majority of the imports). Should the tariffs be implemented, we believe there are multiple mitigation levers including (1) pricing, (2) shifting production/sourcing, (3) other supply chain flexibility, and/or (4) a possible exemption process.”

“PLT has 792,304 square feet of corporate space in Tijuana, Mexico. It’s an impressive facility; we’ve visited the site. We believe this represents over half of all volumes coming into the US (including final assembly), but under 50% of all manufacturing. The company had been moving more of their volumes there given the China tariffs. The president’s tweet was not clear if the tariff applied to all goods coming into the country from Mexico (including final assembly) or just those manufactured there.”

“Two-thirds of LZB’s cut-and-sew kits come from a Mexico facility and the recently acquired Joybird has a manufacturing facility in Tijuana, Mexico. • With the Trump administration threatening an initial 5% tariff starting on June 10 (could go up to 25%) on goods imported from Mexico, we think this adds another layer of risk to an investment in LZB.”

“Half-baked POTUS tweet on Mexico: the facts as they relate to MMSI – BUY weakness Bottom line: We would be buyers of MMSI on weakness stemming from last night’s POTUS tweet around imposing 5% tariffs on all imported Mexican goods. Given companies have but a single tweet to go off, making projections is an exercise in futility given the lack of specific detail; companies have virtually no basis from which to make forward looking decisions at this point. Furthermore, while the lack of detail from the President around specifics is frustrating, we think it is unlikely further details materialize ahead of the President’s texted June 10 “deadline” and view the deadline as soft at best. Regardless, we view the weakness in MMSI common providing an attractive entry point in the low 50s and would accumulate.

“Exposed to possible Mexico tariffs, China sales slowdown. A potential 25% tariff on Mexican imports into the US is a risk, especially if Kontoor can’t pass through price. The company owns manufacturing facilities in Mexico, and we estimate that it would need to raise US prices by 5% to offset the EPS impact from a 25% tariff. Without any price increase, a 25% tariff would hurt EBITDA by 34%. A weaker peso could help offset some pressure. China sourcing is <2% of goods into the US, but a slowdown in China from the trade war is a risk. Lee is a leading denim brand in China and apparel sales to the Chinese middle class have been under pressure.”

“FBHS faces largest threat from Mexico tariffs; FBHS has meaningful operations in their cabinets and security business in MX. On cabinets, it’s primarily within the retail in-stock business (22% of cab sales), where it has moved capacity to cut costs with products targeting the value market. In Security, FBHS has significant assembling capacity for its Master Lock padlocks and SentrySafe products (~42% of Doors & Security sales) in MX. Since the operations are classified as “maquiladoras” or foreign owned factories in MX, they receive preferential tariff treatment and generally operate duty and tariff free, so the headwind could be mitigated.”

“Tariffs on Mexican manufactured goods sold in the U.S. will be a manageable expense in the near-term for Brady Corporation, but could present a bigger challenge over the long-term should they reach 25%. .. .For Brady Corp. we believe the tariff would result in an EPS headwind of $0.01, or 1%, to 4Q19 results, but it could be a $0.10-$0.15 impact to FY20 results, or a 5% year-over-year headwind compared to FY19 EPS. Brady Corporations largest manufacturing facility is based in Tijuana, Mexico including all of its PDC Healthcare manufacturing. The company has three of its 39 manufacturing facilities in Mexico. We estimate 15-20% of Brady’s U.S. sales are products imported from Mexico.”

“GM is relatively more exposed than Ford because of: (a) Higher GM production in Mexico of high-margin vehicles (Pickups & crossovers), (b) Relatively greater content sourcing from Mexico. Sizing financial exposure is tricky because of limited disclosures and legal/contractual considerations. We aim to err on the size of caution. For GM, we roughly estimate that a 5% tariff could be a several-hundred-million dollar annual earnings hit. Since the potential tariff action appears limited to Mexico, GM could conceivably attempt to shift high-margin Pickup production from Mexico to Canada temporarily, as well as the Equinox. This is one distinction between this new situation and NAFTA back in 2017. Not every automaker enjoys offset options—we count several-hundred-thousand Mexico produced crossovers/trucks without a second NA plant source. So there could be a lot of moving pieces, though of course the initial take is clearly negative.”