Sunday, January 15, 2017

Income Tax Rates

Income Tax Rates

One item talked about a lot of late is corporate income taxes.  I was reading some commentary on Gundlach's recent presentation (Jeff Gundlach full presentation) about p/e ratios being stretched and someone made the point that if you assume lower tax rates, that p/e ratios don't look high at all.

I am sure that idea has some merit, but it made me start wondering, how much tax do corporations actually pay?  I can answer that question, as my workbook to create my top 200 lists allows me to easily pull any balance sheet or income statement figures.  But keep in mind it is high level: Pre Tax Income and Income Taxes. So I assume that can be any income taxes, state, federal or other countries.  That means if you get a blended rate of 35% and you know the federal rate is going to 25%, you cannot assume a 10 point improvement.  It would be less.  So for the top 200 list I published yesterday,  here are the rolling 12 month tax rates:

Ticker Rank  Stock Price  Market Cap Tax Rate
NTIP 1            3.55               89 23%
FPRX 2         48.62         1,319 7%
NHTC 3         25.41            285 14%
ACHI 4            2.25            230 40%
GILD 5         73.07       97,841 19%
PDLI 6            2.27            373 39%
CALL 7            8.10            129 60%
WILN 8            1.64            195 57%
MMI 9         25.76         1,008 40%
IDCC 10         90.15         3,151 23%
AVID 11            5.11            207 -5%
AGTC 12            9.40            173 0%
PCO 13            6.45            173 2%
CHKE 14         10.00               87 34%
UTHR 15       150.22         6,940 32%
VEC 16         24.65            273 36%
AGX 17         70.70         1,103 33%
TDC 18         28.51         3,752 81%
CSCO 19         30.07    152,335 17%
ICON 20         10.45            599 34%
GME 21         22.73         2,364 36%
HLF 22         52.00         4,493 29%
LFVN 23            7.70            111 29%
HPQ 24         14.77       25,537 29%
MSGN 25         22.20         1,674 40%
CBI 26         32.73         3,334 19%
SYNT 27         21.21         1,788 110%
TARO 28       104.85         4,330 16%
SSNI 29         13.33            690 10%
MBUU 30         17.79            316 37%
IRMD 31         12.25            145 34%
DLX 32         73.27         3,586 33%
VIAB 33         38.70       15,414 26%
AMAG 34         23.00            969 8%
MCFT 35         14.01            260 38%
NSR 36         33.10         1,835 15%
TGNA 37         21.61         4,713 31%
HRB 38         23.79         5,128 36%
UIS 39         13.75            689 546%
VIA 40         42.80       17,047 26%
VLRS 41         13.84         1,400 30%
SCMP 42         12.50            543 21%
AMCX 43         56.47         4,074 31%
PBI 44         16.59         3,097 33%
TRNC 45         13.65            497 -78%
RGR 46         51.35            986 36%
ASPS 47         26.77            524 66%
DHX 48            5.85            279 -20%
GHC 49       525.85         2,931 32%
CA 50         33.09       13,732 29%
CXRX 51            2.17            113 5%
MPAA 52         28.33            550 41%
USNA 53         61.70         1,546 28%
AAPL 54       119.04    642,022 26%
YY 55         42.62         2,592 16%
ESRX 56         71.80       45,026 34%
BKE 57         21.50         1,038 37%
MYGN 58         16.33         1,124 28%
RPXC 59         11.11            558 40%
UEPS 60         11.87            631 33%
NLS 61         16.25            510 27%
TNH 62       106.47         1,970 0%
GNE 63            5.84            133 -6%
MCK 64       147.18       33,557 29%
WNC 65         17.22         1,137 35%
NCIT 66         13.45            186 38%
AKRX 67         22.48         2,840 32%
KORS 68         42.39         7,157 25%
BBY 69         43.83       14,026 36%
LEE 70            3.15            173 38%
ASFI 71         10.05            132 21%
BIIB 72       284.75       62,474 25%
SEDG 73         13.50            594 -2%
FIT 74            7.44         1,813 42%
HSII 75         23.20            437 51%
DISCK 76         26.82       16,146 27%
LEA 77       143.33       10,327 26%
MIK 78         20.52         4,213 35%
ORCL 79         39.26    164,696 23%
BBSI 80         62.22            461 25%
AWRE 81            6.40            147 33%
ABBV 82         61.99    101,664 22%
APEI 83         25.45            413 38%
DISCA 84         27.40       16,495 27%
CPLA 85         86.85         1,024 39%
FOX 86         29.25       54,493 27%
SCLN 87         10.55            555 7%
BGSF 88         14.00            126 38%
TUP 89         54.71         2,779 30%
SGU 90         11.24            634 43%
BPT 91         29.35            628 0%
BPT 92         29.35            628 0%
NATH 93         62.35            262 38%
RHI 94         49.91         6,398 37%
FOXA 95         30.03       55,946 27%
SIMO 96         43.31         1,539 19%
DIN 97         75.56         1,363 35%
DL 98         10.87            360 19%
RLGY 99         26.27         3,812 39%
MED 100         41.38            494 33%
GSB 101            4.26               92 29%
NVO 102         35.73       90,429 21%
CYOU 103         23.94         1,274 13%
AMFW 104            5.81         2,225 1%
CAH 105         75.00       24,150 38%
MDCA 106            7.00            366 -12%
KLAC 107         81.44       12,788 18%
SPOK 108         20.90            429 -239%
AMGN 109       156.12    117,558 14%
WSTC 110         25.21         2,133 35%
OMC 111         85.31       20,363 33%
MAN 112         93.28         6,436 36%
AMWD 113         74.85         1,231 35%
KFY 114         28.60         1,630 35%
ETM 115         15.05            624 38%
MPW 116         12.63         3,126 1%
MLHR 117         31.75         1,916 29%
AHS 118         33.02         1,632 40%
IPG 119         23.58         9,618 29%
MDP 120         58.40         2,656 60%
MCO 121         96.96       18,839 31%
GNC 122         11.42            780 37%
OMAB 123         32.23         1,583 29%
PETS 124         22.75            464 37%
ODP 125            4.63         2,523 -51%
GIB 126         49.36       15,280 26%
CSGS 127         50.62         1,652 33%
EBF 128         16.65            428 37%
MHFI 129       107.92       28,631 30%
CBS 130         62.32       27,795 27%
LB 131         60.69       17,616 35%
CATO 132         26.77            716 19%
FL 133         70.55         9,454 35%
GNTX 134         20.89         6,068 32%
FRAN 135         18.37            692 38%
INFY 136         14.50       33,146 28%
HSNI 137         33.90         1,791 37%
TIME 138         18.95         1,888 53%
IQNT 139         22.97            794 37%
Q 140         77.16         9,348 29%
DNB 141       123.48         4,519 45%
LEJU 142            3.99            540 31%
GPS 143         23.66         9,464 43%
CLCT 144         21.07            180 39%
ROIA 145            2.65            126 -2%
ROIAK 146            2.70            128 -2%
JAZZ 147       117.30         7,231 26%
ZPIN 148         15.52            890 17%
MEET 149            5.09            301 -174%
VGR 150         22.31         2,773 37%
TWX 151         94.14       74,135 25%
LCI 152         20.30            745 42%
TZOO 153         10.15            141 39%
AEO 154         15.21         2,808 34%
MD 155         70.69         6,584 36%
COH 156         35.08         9,889 26%
WYN 157         77.30         8,503 34%
BBBY 158         40.92         6,080 36%
SNI 159         75.29         9,797 30%
JNPR 160         27.87       10,716 26%
ANIK 161         50.03            754 36%
SQBG 162            4.95            312 23%
SBH 163         25.77         3,791 37%
HURN 164         46.00            986 22%
MAS 165         32.05       10,544 37%
SWKS 166         78.33       14,789 17%
DPS 167         89.54       16,628 34%
NRCIA 168         18.55            457 33%
UTMD 169         67.90            257 24%
MTOR 170         13.66         1,213 -274%
CO 171            5.88            429 33%
WTW 172         12.23            805 18%
SRDX 173         24.90            334 41%
WINA 174       118.00            511 38%
QCOM 175         66.88       99,718 17%
BBGI 176            6.80            158 40%
HMTV 177         11.70            480 36%
TJX 178         75.93       50,244 38%
CR 179         73.80         4,384 30%
CHRW 180         73.38       10,485 37%
GRMN 181         48.52         9,182 17%
ENTA 182         33.99            647 33%
TSQ 183         10.10            276 41%
MLP 184            7.13            135 0%
SHI 185         60.40         6,527 23%
UTX 186       110.22       91,593 32%
CTSH 187         56.52       34,392 34%
STRA 188         80.45            871 39%
SPLS 189            9.17         5,988 -7%
BAH 190         36.33         5,457 22%
EXPD 191         53.87         9,842 37%
EXPR 192         10.74            844 37%
SERV 193         37.16         5,095 39%
PFMT 194            2.23            112 15%
ITRN 195         27.25            571 31%
GD 196       177.89       55,098 27%
MSI 197         82.27       13,953 31%
BLBD 198         16.05            443 45%
CIGI 199         37.00         1,441 35%
BLD 200         37.62         1,428 10%


Wow,  all freaking over the map.  Let me check one (say WILN at 57%) just to make sure I did it right.


Category
2016 Q3 2016 Q2 2016 Q1 2015 Q4 Total
Sales/Turnover (Net)
       16,569        15,961        30,160        26,017      88,707
Operating Expenses – Total           7,199           8,939        10,509        10,010      36,657
Cost of Goods Sold           5,396           6,293           7,969           8,121      27,779
Gross Profit (Loss)        11,173           9,668        22,191        17,896      60,928
Selling, General and Administrative Expenses           1,803           2,646           2,540           1,889        8,878
Operating Income Before Depreciation           9,370           7,022        19,651        16,007      52,050
Depreciation and Amortization – Total           6,847           9,956        10,130        10,086      37,019
Operating Income After Depreciation           2,523         (2,934)           9,521           5,921      15,031
Non–operating Income (Expense) – Total                60              234              281                   6            581
Special Items Income (Expense)                  -                    -                    -           (3,049)       (3,049)
Pretax Income           2,583         (2,700)           9,802           2,878      12,563
NET INCOME (LOSS)              657         (3,152)           4,920           3,007        5,432

Hmm, that does work. 5,432/12,563 is 43%. So Tax rate is 57%.  

I am not sure what this tells us.  It is clear there is a difference between the actual tax rate (what we have here) and the pro-forma tax rate.  I suspect it has to do with tax carry forwards or perhaps acceleration of items like depreciation.  But I am not an accountant.

Here are some statistics on top 200. 

Average tax rate: 26.8%
Median Tax Rate: 31.2%
Wt Average Tax Rate (so HPQ and AAPL get more weight): 25.5%.

Here are stats going to top 400

Average: 27.2%
Median: 30.5%
Wt Average: 25.5%

These feel more like going forward rates.  So while tax rates can vary a lot by company, it looks like on average we come to numbers that make sense.  I suspect the median is a good figure for a company that is more US centric, while the averages may be more representative of multi-national companies.

Summary

Not really sure where I am going with this, but I think at the end of the day that the impact on post tax earnings may be a bit less than people are expecting, especially for multi-national companies. So if we think about a pure US company, like Foot Locker (FL), 35% is the rate. They maight really benefit from a 20 to 25% federal rate.  But multi nationals, like ORCL and ABBV are already at 22% and 23%. So they will get some impact from lower fed rate, but their income is blended, so only US component will benefit.

Any thoughts?

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