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Why Trump's $1 Trillion 10-Year Infrastructure Plan Will Only Provide $200 Billion In Stimulus

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Why Trump's $1 Trillion 10-Year Infrastructure Plan Will Only Provide $200 Billion In Stimulus
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One of the central parts of President-elect Donald Trump’s economic plan is his call for $1 trillion in infrastructure spending over the next 10 years. Investors have taken that massive infrastructure spending plan as spectacular news for infrastructure stocks, which have surged in 2016.

Unfortunately, Axiom analyst Gordon Johnson believes investors are being too optimistic about the prospects of Trump’s plan. In fact, Johnson pointed out that Trump’s plan is nearly identical to the Transportation Infrastructure Finance and Innovation Act (TIFIA) that has been in place since 1998.

Not A New Idea, Or Plan

“Under Trump’s current plan, which will rely on 83 percent funding from private debt investors — who require a return in excess of their cost of capital (5–6 percent on 30yr paper) — the equity market is assuming 100 percent of the funding will be extended, while the TIFIA program currently in place, which offers investors ~80 percent in gov’t handouts, is only generating ~24 percent investor interest? We think the market is wrong, and thus model a conservative $200 billion in stimulus extended from Trump’s current plan,” Johnson explained.

Axiom believes steel stocks, which have been on fire in 2016, have gotten way ahead of themselves on infrastructure spending enthusiasm. The firm maintains Sell ratings on all of the following infrastructure stocks:

  • Caterpillar Inc. (NYSE: CAT).
  • Cliffs Natural Resources Inc (NYSE: CLF).
  • Fortescue Metals Group Limited (ASX: FMG).
  • GATX Corporation (NYSE: GATX).
  • Joy Global Inc. (NYSE: JOY).
  • Rio Tinto plc (ADR) (NYSE: RIO).
  • Trinity Industries Inc (NYSE: TRN).
  • United Rentals, Inc. (NYSE: URI).
  • United States Steel Corporation (NYSE: X).

Latest Ratings for RIO

DateFirmActionFromTo
Dec 2016Credit SuisseUpgradesNeutralOutperform
Dec 2016CitigroupUpgradesSellNeutral
Dec 2016ArgusMaintainsBuy

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