President Donald Trump shifted his tariff policy on April 9, levying a 145% tariff on China and a flat 10% tariff on all other countries for the next 90 days. Maersk MAERSK B shares have fallen 22% this year. Shares have been highly volatile, moving rapidly as policy changes shift expectations.
Key Morningstar Metrics for Maersk
- Fair Value Estimate: DKK 11,100.00
- Morningstar Rating: ★★★
- Economic Moat: None
- Morningstar Uncertainty Rating: High
Why it matters: Chinese-US trade accounts for 2%-3% of global trade volumes and would feel the greatest impact from the current policies. However, policy shifts, like those levying tariffs on a greater number of countries, expand Maersk’s exposure and increase the probability of volume and price retractions.
The bottom line: In line with Hapag-Lloyd, we are lowering our fair value estimate for no-moat Maersk to DKK 11,100, down 20% from the beginning of the year. We view the China-focused and short recession scenarios as the more likely outcomes, but also factor in the potential for severe tariffs.
- In this scenario, we anticipate a 1.5%-2.5% reduction in global gross domestic product forecasts. We model trade volumes to fall the same amount, as trade volumes have matched GDP growth over the past decade.
- Decreased demand puts downward pressure on freight rates, further depressing global shipping revenue, a key reason fair values fall further than their volume reductions
40% Downside if Long Term Recession Materializes
With tariff policy changing frequently, we analyzed the potential impact from three potential outcomes on Maersk: tariffs primarily focused on China, a short recession from tariffs lasting less than a year, and a recession of more than 18 months due to a prolonged trade war.
Our short recession examples are covid-19 and the 2000 dot-com bubble. During covid-19 the prices of Maersk and Hapag-Lloyd fell by 38% and 36%, respectively. Only Maersk traded during the dot-com bubble, falling 50% at its trough.
Neither period is a perfect comparison as tariffs were not a factor in either recession. In this scenario, we anticipate further volume reductions for 18 months. We also slightly lowered our freight rates forecast as lower demand puts downward pressure on freight prices. This results in an average fair value decrease of 25%, from our Jan. 1 fair value, to DKK 10,500, roughly in line with the market.
The recent comparison with a prolonged recession is the 2007-09 global financial crisis. Only Maersk traded during that period, bottoming at negative 63%. Similar to our short-term scenarios, this is not an apples-to-apples comparison as tariffs were not a factor in the sharp drop. During the Smoot-Hawley Tariff Act of 1930, the last period of significant tariffs, US imports fell by two thirds. However, given the globalization of economies since 1930, we do not think this is a fair comparison with the current situation.
In the event of a long-term recession caused by a trade war, we anticipate a severe volume impact, resulting in volume retraction throughout our forecast period. We also significantly lowered our freight rate forecast and margins as a greater reduction in demand would put greater downward pressure on freight prices. This results in an average fair value decrease of 40%, from our Jan. 1 fair value estimate, to DKK 8,000.
Vessel supply concerns have been put on the back burner due to tariffs, but these can significantly hit the performance of global carriers. After a decade of conservative spending and limited expansion of vessel supply, the global order book has returned to its previous high levels, last seen in 2011 when rates were significantly lower than the past half-decade.
Rerouting around the Cape of Good Hope due to the situation in the Red Sea has reduced the supply of vessels, keeping shipping prices artificially high. If global shippers can and do return to the Red Sea, freight rates will fall significantly, all else equal. Maersk quantified the impact on its earnings, anticipating a potential $3 billion difference in EBIT and EBITDA if the Suez Canal remained closed all year versus opening midyear.
Bulls say: If the current policy is enacted through 2026, we anticipate a 1%-2% drop in volumes, resulting in a 12% decrease in our start-of-year fair value estimate to DKK 12,000.
Bears say: We analyzed Maersk and Hapag-Lloyd during recent recessions, short-term (three months to a year) and long-term (over 18 months).
- If a short recession occurs, we anticipate a 2%-3% reduction in volumes, resulting in a 25% decrease in our start-of-year fair value estimate to DKK 10,500.
- If a long-term recession occurs, we anticipate volume retraction and a severe impact on freight rates, resulting in a 40% decrease in our start-of-year fair value estimate to DKK 8,000.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.
