From Apple To Netflix, Tax Reform's Impact On The Titans Of Tech

President Donald Trump has signed legislation that slashes the federal corporate tax rate and incentivizes repatriation of overseas profits.

KeyBanc Capital Markets analyst Andy Hargreaves examined the impact of changes to tax rate, bonus depreciation and foreign taxation on tech stalwarts such as Apple Inc. AAPL, Alphabet Inc GOOGLGOOG, Netflix, Inc. NFLX and Facebook Inc FB.

Bonus depreciation of capital expenses and production costs are likely to significantly benefit large tech companies that spend on equipment and domestic production, Hargreaves said. (See the analyst's track record here.) 

The bonus depreciation, along with the cut to the corporate tax rate, will be among the largest drivers of change to cash and GAAP tax rates in the new bill, according to KeyBanc. 

"[The] base erosion and anti-abuse clauses are highly complex, subject to potential litigation and likely to be impacted by future tax planning to shift assets/profits," Hargreaves said. 

See also: Why Tax Reform Benefits Tech ETFs

Apple

For Apple, KeyBanc now expects a potential tax rate change from its current 25.5 percent estimate to 12.3 percent in 2018. The move to a territorial tax system is likely to end Apple's practice of including potential federal taxes due on 50 percent of foreign earnings, according to KeyBanc. This will be partially offset by an increase in Apple's foreign effective tax rate due to base erosion, the firm said. 

Incorporating the benefits of tax reform, KeyBanc now estimates Apple's earnings to be $13.65 per share in 2018 versus an earlier estimate of $11.66.

Facebook

The tax rate for Facebook in 2018 is likely to move from KeyBanc's current 20 percent estimate to 7.8 percent. The firm also raised its EPS estimate for Facebook from $6.40 to $7.38. 

Google

KeyBanc estimates Google's tax rate will move from 20 percent to 10.6 percent and said its 2018 EPS is likely to increase from $39.57 to $44.21.

Netflix

Netflix's tax rate is projected to drop from 28 percent to 10.9 percent, and KeyBanc's 2018 EPS estimate for Netflix has gone from $2.15 to $2.66, Hargreaves said. 

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