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The tax bill that's in conference committee at the Capitol will likely have outsized benefits for certain sectors. Although the tax plan isn't finalized, Wall Street analysts are busy offering their opinion on potential winners.
The Analyst
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Bank of America Merrill Lynch's Robert Ohmes.
The Thesis
Athletic retailers will likely emerge as a potential major beneficiary from tax legislation due to their notable exposure to the U.S. market and their high effective tax rates, Ohmes said in a Thursday note. A reduction in the corporate tax rate to 20 percent would result in an incremental 14 percent boost to athletic retailers' earnings per share in the year the tax cut kicks in, he said.
BofA projects that, among companies it covers, Planet Fitness Inc (NYSE:PLNT) will see the greatest — 25 percent — boost to its EPS. Some investors are likely guilty of "overlooking" the company as "a tax beneficiary, given tax screens are likely picking up PLNT's 25-percent GAAP tax rate rather than the 39.5 percent used to calculate PLNT's pro forma EPS," Ohmes said.
Athletic Retailers
The following athletic retailers are likely to see the "greatest EPS increase," according to BofA:
- Dicks Sporting Goods Inc (NYSE:DKS)
- Finish Line Inc (NASDAQ:FINL)
- Hibbett Sports, Inc. (NASDAQ:HIBB)
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Athletic Vendors
The following companies would see a "more modest earnings boost" from tax reform, Ohmes said:
- Nike Inc (NYSE:NKE)
- Under Armour Inc (NYSE:UAA)
- VF Corp (NYSE:VFC)
- Columbia Sportswear Company (NASDAQ:COLM)
- Foot Locker, Inc. (NYSE:FL)
The reason for athletic vendors like Nike and Under Armour would see less of a benefit versus some of the athletic retailers is due to their significant international exposure, which already carries a low tax rate, according to BofA.
It's difficult to forecast the benefit Lululemon Athletica inc. (NASDAQ:LULU) would receive given its transfer pricing arrangements, Ohmes said. The yoga pant retailer would at the very least see a "modest benefit," and the company has "significant flexibility" when it comes to its foreign-held cash, the analyst said.
RVs
Finally, Camping World Holdings Inc (NYSE:CWH) and Patrick Industries, Inc. (NASDAQ:PATK) boast a high domestic exposure rate and high tax rates, so they're "well-positioned to benefit" from tax reform, Ohmes said. The two companies have communicated a growth strategy that is capital-intense, which could accelerate using the cash savings from lower taxes, he said.
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Photo by Anthony92931/Wikipedia.
Crypto Whales Are Loading Up — Are You?
New research shows the biggest crypto buyers are back. And this time? They could hold for the possibility that Bitcoin will surpass $100,000 in 2024. You don’t want to miss the next massive crypto bull run like we saw in 2020 and 2021. To know exactly what’s going on and what to buy… Get Access To Benzinga’s Best Crypto Research and Investments For Only $1.