The Royal Bank of Canada puts Apple’s potential 2018 earnings boost at roughly 40% (see math, below).
From a note to clients by RBC analyst Amit Daryanani that landed in my inbox Monday night:
Sizing Tailwinds From Potential Tax Reform
With legislative efforts now focused around US tax reform, we think AAPL could be one of the biggest beneficiaries in our space. The four big policy levers are
(i) Reduction in Federal corporate tax rate, which should bring effective tax rate to below 20%
(ii) Deduction of capital investments
(iii) Limits to tax deduction of interest expense (minor headwind for AAPL)
(iv) Repatriation of offshore cash at a low tax rate.
While details are far from finalized, we think that potential provisions could add $4.00-$4.50 to our FY18 EPS estimate under a relatively conservative set of assumptions). Ex-repatriation, a recurring EPS boost of $1.00-1.20 itself would imply 10% + stock appreciation at current multiples, which is largely not factored in current stock price. However, if the increasingly aggressive actions of EU regulators were to result in an adverse outcome, potential tailwinds from US tax reforms could be largely offset.
Net/Net: While there are significant uncertainties around corporate tax reform, we think it could provide AAPL EPS a $4.00-4.50 tailwind and drive the stock closer to a trillion dollar market cap scenario.
Daryanani maintains his Outperform rating and $180 price target.
My take: With this Congress, “significant uncertainties” is an understatement.
Below: Daryanani’s math.