How CSX Would Benefit From A Proposed Reduction In The Federal Tax Rate By The Incoming President

November 25th, 2016 by Trefis Team
-0.12%
Downside
35.14
Market
35.10
Trefis
CSX: CSX logo
CSX
CSX

The U.S. stock markets have rallied sharply post the presidential election held earlier in the month. President-elect Trump’s campaign promises have fueled expectations of the new administration ushering in a range of business friendly policies, including the lowering of federal corporate tax rates. The President-elect has proposed lowering the federal corporate tax rate to 15%, from the current 35%. [1] If the new administration follows through on its promise to lower corporate taxes, it would provide a substantial boost to American companies. In this article, we will take a look at the potential impact of such a move on CSX’s stock price.

CSX is subject to a combination of federal and state taxes. For the year 2015, the company’s effective tax rate stood at 37.3%, with federal taxes at the rate of 35%, accounting for most of the company’s tax burden. [2] Thus a lowering of the federal tax rate would substantially affect the company’s overall tax burden. We have factored in an effective tax rate of 37% for CSX in our model for the company’s stock. Since it remains to be seen whether the extent of the potential reduction in federal corporate tax rate is as drastic as previously proposed, in this article we will assume that the new administration lowers the federal corporate tax rate to 25%, resulting in a reduction in CSX’s effective tax rate to 27%. The following graph illustrates the company’s tax rate in this scenario.

See our forecast for CSX’s effective tax rate in this scenario 

Relevant Articles
  1. What’s Next For CSX Stock After A 12% Rise Last Year?
  2. What Next For CSX Stock After A 19% Fall In Q3 Earnings?
  3. Should You Pick Humana Over CSX Stock For The Next Three Years?
  4. CSX’s Top Line To Decline In Q2?
  5. Will CSX Stock Recover To Its Pre-Inflation Shock Level?
  6. Here’s What To Expect From CSX’s Q1

If we factor in the lower effective tax rate assumption into our model, it increases our price estimate for the company’s stock by around 23%. Thus, if implemented, a corporate tax rate reduction of a similar magnitude could significantly boost CSX’s stock price.

See our complete analysis for this scenario here

Have more questions about CSX? See the links below.

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for CSX

See More at Trefis | View Interactive Institutional Research (Powered by Trefis)

Get Trefis Technology

Notes:
  1. Trump and Taxes, Bloomberg [↩]
  2. CSX’s 2015 10-K, SEC [↩]