Last week the president threatened to begin levying a 5% tariff on Mexican goods June 10, proposing to increase it by 5% every month until Mexico halts the flow of migrants to the U.S. border. Spooked by the threat, investors sent stock prices down across the globe May 31.
RBC Capital Markets analyst Brandon Henry said the effect of the tariffs would be moderate and easily weathered by the industry as a whole. But companies like ISRG and Medtronic that do a lot of business in Mexico could pay a stiffer price, Henry said.
“With China, the majority of companies in our space have reported a less than 1% earnings-per-share hit from the tariffs,” Henry wrote in a note to investors last week, according to Investor’s Business Daily.
“I think [Mexican tariffs are] going to be similar to [Chinese tariffs],” he told Barron’s. “I’ve heard back from a lot of the companies. I would describe it as a manageable impact for the space.”
Still, Mexico is key for the medtech industry, accounting for nearly $8 billion (15%) of the $50 billion import market and $3.5 billion in exports to Mexico. Before the trade war with China that country accounted for $6 billion in imports and $4 billion in exports, according to Henry.
“The U.S. medical device industry is heavily reliant on imported components from Mexico, which are used to assemble finished goods for either domestic consumption or for export to countries like Canada,” he wrote in the client note.
Companies with the most exposure to the proposed tariffs include Intuitive Surgical (NSDQ:ISRG), which makes most of the instruments for its da Vinci line of robot-assisted surgery devices in Mexicali, Mexico; Baxter (NYSE:BAX) and Integer Holdings (NYSE:ITGR), which three plants each there; Medtronic (NYSE:MDT), which has about 8% of its total manufacturing and research space in Mexico; and Becton Dickinson (NYSE:BDX), which responded to the Chinese tariffs by shifting operations to Mexico, Henry said.
“[BD] has also said that the biggest products the company had impacted in the first round of the Chinese tariffs were electromechanical devices,” Henry said. “Becton Dickinson has been protectively moving and validating to source those devices from Mexico.”
ISRG shares closed down -2.7% at $464.85 apiece May 31, the day after the Mexico tariff threat surfaced. BDX shares also closed down last week, at $233.44 each, off -1.6%. ITGR shares closed down -1.4% at $70.10 and BAX shares were out -1.3% at $73.44 when the market closed last week. Only MDT stocks failed to post a loss, closing flat at $92.58 per share.
