Stocks to Watch as External Revenue Service Takes Shape
President Trump has introduced an intriguing proposal for a new agency known as the 'External Revenue Service.' This initiative aims to shift the collection of tariffs and fees from foreign nations, suggesting a comprehensive change in how the federal government raises funds. Trump previously hinted at a universal tariff, potentially ranging from 10% to 25%, with an increased rate of 60% specifically on China for exports. If enacted, this plan could redefine how federal funding operates by reducing reliance on taxpayer dollars.
While this ambitious plan must secure the approval of Congress, the Republican majority in the House and Senate presents a favorable scenario for its potential implementation. Should this agency become operational, it is likely to ignite a spark in consumer spending as taxpayers would enjoy keeping a significant portion of their income, which would otherwise have been directed to the IRS. Below are three notable stocks that stand to gain if the External Revenue Service comes to fruition.
1. Charles Schwab: A Savings, Investing, and Trading Benefactor
The pandemic highlighted the significant impact that consumer-level financial provisions can have on spending, investing, and saving. The financial services sector is poised to thrive with increased cash flow in the hands of the average consumer. Charles Schwab (NYSE: SCHW), as the leading retail broker in the U.S., boasts an impressive $9.92 trillion in assets under management (AUM). The company stands ready to enhance profitability through various revenue streams, including elevated wealth management fees and increased trading volumes.
In a recent quarter, Schwab reported remarkable metrics, with year-to-date (YTD) flows into its Wealth Advisory platform up 65% year-over-year (YoY). The financial institution has experienced a surge in net asset gathering, escalating by 10% to reach a total of $95 billion. Additionally, Schwab's net interest revenue hit $2.2 billion during the same period. The advent of an External Revenue Service could lead to significant increases in all these areas.
2. Target: Benefiting from Increased Consumer Discretionary Spending
The establishment of the External Revenue Service could greatly benefit both the consumer staples and consumer discretionary sectors as a result of heightened disposable income for Americans. Target (NYSE: TGT) stands out as a prominent department store that caters to a diverse clientele, offering everything from essential groceries to luxury items like electronics and apparel.
However, it is essential to note the challenges Target faced in its recent quarterly earnings report, where a reliance on discretionary goods contributed to a 22% decline in share prices following their announcement. In contrast, while Walmart (NYSE: WMT) faces its own challenges with margins under pressure from export tariffs, it has a relatively lower exposure to discretionary products compared to Target.
3. Tapestry: Fashion Apparel and Accessories Benefactor
As consumers find themselves with increased discretionary income, spending on high-end luxury goods like handbags and footwear often rises. Tapestry (NYSE: TPR), the parent company of luxury brands such as Coach, Kate Spade, and Stuart Weitzman, could significantly benefit from this trend.
The company recently faced a setback when its proposed $8.5 billion acquisition of Capri Holdings (NYSE: CPRI) was halted by the Federal Trade Commission (FTC) over antitrust objections. This merger promised to create a formidable fashion entity by adding esteemed brands like Jimmy Choo, Versace, and Michael Kors to Tapestry's collection.
Moving Onward and Upward
On a notable day, Tapestry announced the conclusion of its merger attempt, marking a pivotal moment for investors concerned about the future of the brand. Despite this development, Tapestry remained focused on growth, reporting an EPS of 84 cents for fiscal Q1 2025, slightly missing analyst expectations. However, revenues pulled in $1.51 billion, slightly eclipsing consensus estimates.
Furthermore, Tapestry provided an optimistic outlook, increasing its full-year EPS guidance from a previous range to between $4.50 and $4.55. With revenues expected to exceed $6.75 billion, the company is also launching a $2 billion stock buyback program, signaling a strong commitment to bolstering shareholder value.
While Tapestry navigates ongoing challenges, Capri Holdings is reportedly experiencing far more turbulence. The company recently disclosed a notable EPS miss and a substantial YoY revenue decline, alongside a lack of future guidance.
Frequently Asked Questions
What is the External Revenue Service proposed by President Trump?
It's a suggested federal agency aimed at collecting tariffs and fees from foreign countries, potentially shifting how the government funds itself.
How might stocks be impacted if the External Revenue Service is established?
Stocks like Charles Schwab, Target, and Tapestry could see increased financial performance due to higher consumer spending and investment activity.
Why would Charles Schwab benefit from the External Revenue Service?
As more disposable income enters the market, Charles Schwab could experience increased wealth management fees and trading volumes, bolstering their profits.
Is Target likely to benefit from increased consumer spending?
Yes, as disposable income rises, consumers are more likely to spend on both staples and discretionary items offered by Target.
What future plans does Tapestry have to increase shareholder value?
Tapestry plans to implement a $2 billion stock buyback program and has adjusted its full-year EPS guidance upward, reinforcing its commitment to shareholders.
