Analyst: Fintech Is A Big Winner From Tax Reform, 5 Stocks To Play

U.S. stocks have surged in the past week on hopes that Congressional Republicans will soon pass their tax reform plan and lower the corporate rate from 35 percent to at or near 20 percent. While many American companies stand to benefit from a lower tax rate, one analyst said a handful of fintech companies are particularly well-positioned.

The Analyst

Baird analyst David Koning reiterated the following ratings and price targets for his top stock picks, (See Koning's track record here.) 

• Outperform and $72 price target for DST Systems, Inc. DST.
• Neutral and $114 price target for Jack Henry & Associates, Inc. JKHY.
• Outperform and $78 price target for Total System Services, Inc. TSS.
• Outperform and $146 price target for Fiserv Inc FISV.
• Outperform and $108 price target for Fidelity National Information Servcs Inc FIS.

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The Thesis

The five stocks mentioned above will likely get at least a 15-percent boost to their EPS from tax reform, Koning said. As a group, fintech stocks are relatively well-positioned versus the rest of the market, the analyst said. 

“Financial tech stocks would generally have a greater EPS benefit than the average S&P company, and a much larger EPS benefit than the average technology company (we believe the average S&P company has 20-25 percent reported federal tax rate and would be a 5-percent beneficiary from tax reform),” Koning said.

Each of the five top tax reform picks generate at least 90 percent of their total earnings from within the U.S., according to Baird.

Price Action

So far, Koning’s thesis has played out exactly as expected. The Technology Select Sector SPDR Fund XLK is down 2.8 percent in the past week, but each of the five fintech stocks mentioned above is up between 0.2 and 2.5 percent in the same period. 

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