News Analyst
Tariffs make it more expensive for companies to import goods, and ultimately those higher costs get pushed onto consumers. While higher prices may be the last thing the average consumer wants, tariffs could help boost certain companies.
That’s if those companies have pricing power, or the ability to increase prices without losing customers. If that’s the case, the companies could see higher valuations because their revenue would theoretically increase, according to Morningstar’s Dave Sekera.
“Companies with a high degree of pricing power are the ones able to pass through those price increases very quickly to their consumers, and assuming a similar amount of volume, that will increase their revenue by the amount of those tariffs. As long as they can pass those through and their operating margins are the same, that will then result in higher earnings,” Sekera, chief U.S. market strategist at Morningstar, wrote in a note.
While that could boost a company’s share price, Sekera warned that companies without pricing power could take a hit as they see margins contract. Companies may also have to worry about higher prices driving away customers.
