President Trump announced his plan to create a federal agency called the External Revenue Service that would collect tariffs and fees from other countries. Trump has previously said he would impose a universal tariff of 10% to 25% on all countries and up to 60% on China on exports. The agency would eventually replace the Internal Revenue Service as the federal government would be funded by tariffs rather than citizens.
The plan must be approved by Congress, but Republicans already control the House and Senate. If the plan were implemented, it would lead to a sharp increase in consumer spending and savings, as taxpayers would be able to keep up to 37% of their income, which would go to the IRS. Here are three stocks that will benefit if the External Revenue Service (ERS) becomes a reality.
Charles Schwab: Philanthropist of Savings, Investments and Trade
Charles Schwab today
- 52 week range
- $61.01
▼
$83.35
- Dividend yield
- 1.31%
- P/E ratio
- 29.90
- Target price
- $81.41
The pandemic stimulus checks demonstrated how consumer spending, investment and savings activity would increase if citizens were given back some of their tax money. The financial services sector will be the main benefactor, as all excess money will be returned to taxpayers.. Charles Schwab Company. New York Stock Exchange: SW is the largest retail broker in the United States with $9.92 trillion in assets under management (AUM). They will strengthen their profits through increases in asset management fees, trading volumes and net interest income. Schwab generates the most net interest income among retail brokerages.
In the third quarter of 2024, Schwab was already seeing record year-to-date (YTD) inflows into Schwab Wealth Advisory, up 65% year-over-year. About 35% of this amount was generated by attracting Ameritrade retail clients. Net assets rose 10% to $95 billion. During the quarter, Schwab received $2.2 billion in net interest income. The creation of ERS would increase these numbers dramatically.
Goal: Benefactor of discretionary consumer spending
Goal today
- 52 week range
- US$120.21
▼
$181.86
- Dividend yield
- 3.35%
- P/E ratio
- 14.17
- Target price
- US$158.23
The creation of the ERS agency will benefit both the consumer products and consumer services sectors by dramatically increasing the disposable income of most Americans. Target company New York Stock Exchange: TGT is a large department store offering both basic items such as groceries and non-standard items such as video games, televisions, clothing and jewelry.
It was exposure to discretionary items that hurt its earnings in its third-quarter 2024 earnings report, sending shares down 22% the next morning. Bye Walmart Inc. New York Stock Exchange: WMT has less exposure to discretionary goods, it is also the country’s largest importer and will have to deal with the impact of export tariffs (profit compression), which the same ERS agency will be responsible for collecting.
Tapestry: Philanthropist of fashion clothing and accessories
Tapestry today
- 52 week range
- $35.23
▼
$72.09
- Dividend yield
- 1.96%
- P/E ratio
- 20.66
- Target price
- $64.76
With excess funds available for discretionary spending, consumers often gravitate toward spending on designer luxury items such as wallets, bags and shoes. Tapestry Inc. New York Stock Exchange: TPR manages luxury brands Coach, Kate Spade and Stuart Weitzman.
Attempted acquisition of a company for $8.5 billion Capri Holdings Ltd. New York Stock Exchange: CPRI was crushed by the US Federal Trade Commission (FTC) due to antitrust laws. The deal would create a fashion hub, with Tapestry adding additional luxury brands such as Jimmy Choo, Versace and Michael Kors to its portfolio. Tapestry decided to move on.
Leave the past behind and move forward and upward
Shareholders breathed a huge sigh of relief when Tapestry announced it would terminate its merger attempt on November 14, 2024, especially when CPRI stock was trading 64% below its original buyout price of $57 per share. Tapestry didn’t slow down much as the company reported fiscal first-quarter 2025 earnings per share of 84 cents, 9 cents below consensus, and revenue fell 0.4% YoY to $1.51 billion. still exceeding the consensus estimate of $1.47 billion.
Tapestry also raised its full-year fiscal 2025 EPS guidance from $4.50 to $4.55, up from its previous forecast of $4.45 to $4.50, compared to the consensus estimate of $4.45. Revenues are expected to be more than $6.75 billion in fiscal 2025, up from the previous estimate of $6.7 billion versus the consensus estimate of $6.71 billion. Tapestry announced a $2 billion share repurchase program to highlight its commitment to its shareholders.
Unfortunately, Capri Holdings shareholders weren’t so lucky, as the company was in much worse shape, reporting an EPS loss of 8 cents, revenue falling 16.4% YoY and no further guidance.
Before you consider the Tapestry, you should hear this.
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