Tax reform legislation being hammered out in the House and Senate should benefit Comcast more than Charter initially, then in the longer term, Charter more than Comcast, while Dish amortization of spectrum purchases will be offset by capped interest rates, meaning it will not fare as well.
That is according to a MoffettNathanson Research review of the cable and satellite sector impact.
MoffettNathanson says that companies that pay high cash taxes, like Comcast, will benefit from the decrease in the corporate rate from 35% to 20% (a whopping 43% reduction), but that due to new limits on interest deductibility, heavily leverage companies like Altice or Dish, will benefit less.
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For example, with the tax cut, Comcast's estimated $2.45 2018 earnings per share goes from $2.45 to $2.98.
Because Charter is more heavily leveraged (it is still integrating the Time Warner Cable purchase), it would run up against the limits on interest deductibility in the near term, but the report has Charter's earnings growing sufficiently that it would eventually be able to fully deduct.
Overall, tax reform will be a net positive for all, just not as much for some as others. "The combination of lower taxes and the increase in bonus depreciation will elevate earnings and cash flows, respectively, for all companies in our coverage," MoffettNathanson says, though it has not yet factored that into its ratings for the various companies.
Some of the impact of the ultimate bill--though the details are not yet certain--and who will be the winners and not-so-much-winners has already been priced into the market, the report says, but not suffciiently, it suggests.
"It appears that the divergence between stocks in our coverage in recent months isn't nearly large enough to account for the swings in warranted valuations that arise from tax reform," it says.
