More Than Half Of 2018 Earnings Growth Is From Trump's Tax Cuts And Stock Buybacks
Tyler Durden, ZeroHedge
Heading into 2018, UBS has been one of the most bullish banks, with its equity analyst Keith Parker predicting the S&P500 hits 3,150 by year-end.
And while UBS' optimism is admirable if hardly unique with much of Wall Street expecting a similar return (which means that the pain trade is for everyone to be wrong), what is more interesting is how UBS gets to its target, and specifically its "EPS bridge" from 2017 to 2018E. What it reveals is that more than half of the (non-GAAP) EPS growth in 2018 is expected to come from the Trump tax cuts and buybacks.
Specifically, as shown in the chart below, when moving from the 2017 non-GAAP number of 132.50 to the UBS 2018 forecast of 157, 55% of this 24.5 delta, or 13.60 is expected to come from the "Trump tax uplift" (10.30 EPS units) and the "Buyback tailwind" (another 3.30). Meanwhile, organic US GDP growth is expected to contribute just 6.5 to this bridge.
In other words, Trump's tax reform, which resulted in corporate tax cuts and a tax regime that has prompted a surge in buybacks courtesy of offshore cash repatriation, will boost EPS growth by more than double compared to what US economic growth would do alone!