The controversial Republican tax bill is not yet final, but Wall Street already has a picture of how the bottom line of companies such as Amazon.com Inc. (AMZN - Get Report) , Facebook Inc. (FB - Get Report) , Alphabet Inc. (GOOGL - Get Report) and Comcast Corp. (CMCSA - Get Report) will improve.
Many tech stocks pulled back early this week as money flowed into sectors that would see greater benefits from the bill, of which a majority of Americans disapprove, according to a Quinnipiac University poll. The software industry has a relatively low median effective tax rate of 23%, according to Credit Suisse, which falls below the S&P 500's rate of 27.4%. Transports are taxed at a median effective rate of 36.2% and telecom at 34%, and have more to gain from being lowered.
The big tech companies may not benefit as much as their peers that pay more taxes. Cowen & Co. analyst John Blackledge noted Thursday that reducing the corporate rate from 35% to 22%, where President Trump said it could settle, will have a noticeable effect on profits.
The new rules could save $723 million for Amazon in 2018, Blackledge estimates. Amazon's effective tax rate would fall from 30% to 13.25%, he estimates. The cash could boost Amazon's projected 2018 earnings by 24.2%, from $5.69 per share under the current rules to $7.07 per share under the Republican plan.
Facebook stands to gain $1.56 billion from the tax cuts, Blackledge estimates. Its earnings would climb 7.7%, from $6.87 to $7.40 per share.
Meanwhile, Alphabet would save $2.28 billion, producing an 8.1% increase in earnings from $39.92 to $43.15 per share.
When calculating the earnings upside, Blackledge did not take into account a provision allowing companies to expense 100% of capex or tax break on repatriated cash. Both provisions would also help the big tech companies.
Amazon, Facebook and Google will spend $234 billion in capex from 2018 to 2022, the analyst estimates.
In the telecom sector, Craig Moffett of MoffettNathanson LLC projects that Verizon Communications Inc. (VZ - Get Report) will gain 80 cents per share in 2018 earnings because of the bill. The analyst upped his EPS forecast more than 20% from $3.87 under the current tax rules to $4.67 per share under the new plan.
T-Mobile US Inc.'s (TMUS - Get Report) earnings will improve by 24% from $2.68 to $3.33 per share, Moffett projects. Comcast Corp. (CMCSA) stands to earn $2.98 per share in 2018, nearly 22% more than Moffett's estimate of $2.45 per share under the existing tax rules.
AT&T Inc.'s (T - Get Report) projected 2018 earnings would rise a modest 7.25%, from $2.76 per share under the current tax law to $2.96 per share under the new rules. AT&T has a low tax rate, so the impact to the top line is less pronounced. The cuts have the important benefit, Moffett noted, of helping to stabilize AT&T's dividend.
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