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: