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Trump's plan to lower corporate tax rates could benefit many small/mid-cap IPOs

Lowering corporate taxes has been at the top of the Trump agenda and, under a Republican controlled legislature, it is possible that a change in tax policy can be accomplished in the next few years.

The details: The proposal is to lower corporate tax rates from the current 35% to 15%. Of course, many large-cap global companies are able to tax arbitrage and pay very little in taxes, so this will not benefit them. On the other hand, many U.S. companies in the small/mid-cap segment are paying marginal rates of up to 35%, and this will greatly benefit them.

Here's the math: At a 35% rate, if a company earns $100 pre-tax, it keeps $65 after tax. At a 15% rate, a company that earns $100 pre-tax will keep $85 after tax. That represents a huge 31% increase in bottom line earnings, just based upon a change in tax rates.

What does this mean: Companies that are currently paying or forecasting a 35% marginal rate should see their valuations jump significantly. A company's valuation is based upon the present value future cash flow and this change in tax rates will increase cash flow under a 15% corporate tax plan.

Here are some companies from the IPO universe that would stand to benefit:

Profitable Small & Mid-Cap IPOs from 2016 That Could Benefit from Lower Tax Rates
Company Ticker Offer Date ForwardTax Rate
Camping World Holdings CWH 10/06/16 30%
First Hawaiian FHB 08/03/16 40%
Kinsale Capital Group KNSL 07/27/16 35%
The Trade Desk TTD 09/20/16 35%
e.l.f. Beauty ELF 09/21/16 40%
Extraction Oil & Gas XOG 10/11/16 38%

The article Trump's plan to lower corporate tax rates could benefit many small/mid-cap IPOs originally appeared on IPO investment manager Renaissance Capital's web site renaissancecapital.com.

Investment Disclosure: The information and opinions expressed herein were prepared by Renaissance Capital's research analysts and do not constitute an offer to buy or sell any security. Renaissance Capital, the Renaissance IPO ETF (symbol: IPO) or the Global IPO Fund (symbol: IPOSX) , may have investments in securities of companies mentioned.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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