The US government has imposed a 20% tariff on European goods, sending equity markets down. Shares of European electrical equipment suppliers are trading 5% lower. Importantly, the United States-Mexico-Canada Agreement signed by President Donald Trump during his first term remains intact.
Why it matters: Electrical standards vary across continents, which results in electrical equipment suppliers operating a local-for-local business model. ABB ABBN and Schneider Electric SU, which generate 25% and 28% of their respective revenue from the US, manufacture and source nearly 90% of their components from North America.
• Mexico is a supplier to US operations and is included in the above 90% figure, but since the USMCA remains intact, the impact of the latest tariffs is not significant.
• Legrand LR will be the most affected by US tariffs, as 45% of its cost of goods sold in the US is imported. However, electrical equipment suppliers have historically managed to pass on higher prices to customers.
The bottom line: We’re keeping our fair value estimates unchanged for wide-moat Schneider Electric at EUR 236, wide-moat ABB at CHF 45.50, wide-moat Siemens SIE at EUR 212, and narrow-moat Legrand at EUR 94. Shares in Schneider look appealing.
• The tariffs announced April 2 will not meaningfully affect the profitability of these businesses. Meanwhile, electrical equipment suppliers also benefit from secular growth drivers, including grid modernization and investment in artificial intelligence, which are likely to withstand short-term macroeconomic uncertainty.
• Schneider remains our preferred pick due to its favorable end-market exposure to several growth themes; it’s currently 14% undervalued, in our view. ABB, Legrand, and Siemens appear fairly valued.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
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