Corp. tax cut from 35% to 15% leads to 20%-30% upside; 2017 Outlook

• President-elect Trump has promised a corporate tax cut from 35% to 15%; if this tax cut is enacted, we believe that share prices should rise by some 20%-30%, but not likely for utilities
• Even if non-utility companies don’t change their growth/investment plans, we believe that the change in tax rate would accelerate their growth profile by giving these companies the ability to take the excess cash to pay-down debt faster or by earning interest income on the higher cash balance; however, we feel that it would be difficult to quantify the acceleration in growth profile unless specific plans are known
• If companies invest more than their depreciation expense then their P/E-multiple are likely to increase with a cut in tax rate, while investing less than their depreciation expense looks to reduce their P/E-multiple with a cut in tax rate; however, we feel that it would be difficult to quantify the actual change without knowing specific investment plans and depreciation expenses
• We set up a simple example to demonstrate our thesis:

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