The US government imposes 20% tariffs on European goods and sends out the stock market. The European Electrical Equipment Supplier shares trade at 5% lower. Importantly, the US-Mexico-Canada agreement that President Donald Trump signed during his first term remains in place.
Why it matters: Electrical standards vary from continent to continent, so electrical equipment suppliers run business models for local use. Abb Abbn and Schneider Electric Su generate 25% and 28% of their respective revenues from the US, and manufacture and supply almost 90% of their components from North America.
•Mexico is a US business supplier and is included in the 90% figure above, but the USMCA remains intact, so the impact of the latest tariffs is not significant.
•Legrand LR is subject to US tariffs as 45% of the cost of goods sold in the US is imported. However, electrical equipment suppliers have historically been able to hand over customers high prices.
Conclusion: We have not changed the fair value estimates for the 236 euro wide moat Schneider Electric, CHF 45.50 wide moat ABB, 212 euro wide moat Siemens SIE, EUR 94 narrow moat Legrand, and Schneider Look stock
•The tariffs announced on April 2nd will not significantly affect the profitability of these businesses. Meanwhile, electrical equipment suppliers benefit from secular growth drivers, such as modernizing the grid and investing in artificial intelligence, which are likely to withstand short-term macroeconomic uncertainties.
•Schneider remains our preferred choice for end-market end-exposure to several growth themes. In our view, it is currently undervalued by 14%. ABB, Legrand, and Siemens appear to be highly valued.
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