After the tremendous response to our look at the income-tax rates of the largest U.S. companies, we now follow up with a list of small-cap and mid-cap companies for which President Trump’s proposed corporate tax cut might be even more important.
When we listed the median tax rates for the 30 companies in the Dow Jones Industrial Average DJIA, +0.19% we saw that seven had median income tax rates of more than 30%, while seven had median rates (which include any state or local income taxes, as well as federal income taxes) that were already below Trump’s proposed 20%. The current federal corporate tax rate is 35%, one of the highest in the world.
Jefferies analyst Steven DeSanctis called the president’s tax proposal “a measly outline” in a report on Sunday, but also noted that small-cap stocks had been rallying since the Trump administration announced its proposal Sept. 27.
“History is repeating itself with [small-cap stock investors] jumping based on tax reform,” DeSanctis wrote, because small-caps had also rallied to a greater degree than shares of larger companies during the heady days following Trump’s election in November.
The logic behind the superior recent performance for small-cap and mid-cap stocks is that smaller publicly traded companies tend to derive a much higher percentage of their sales domestically. So they are not only subject to the high federal income-tax rate to a larger degree, but their business structure tends to be simpler and the tax shelters fewer.
A lot is riding on the ability of Congress and Trump to lower the corporate income-tax rate. Given the inability of the Republican-controlled House of Representatives and the Senate to pass any major legislation during Trump’s presidency, the recent rally may pale in comparison to what may happen if a tax cut actually becomes law.
A company’s effective annualized income tax rate can be distorted to a large degree during any particular quarter or year, because of mergers, asset sales, legal settlements, impairment charges, accounting adjustments, etc. Because the rates can vary so wildly, we look at effective income-tax rates for the past nine reported quarters for U.S. companies included in the S&P Small-Cap 600 Index and the S&P 400 Mid-Cap Index, for which the data were available from FactSet. We included only companies for which the data were available for at least five of the past nine quarters. This left us with 854 companies, of which 157 had median effective tax rates below 20%.
Here are the 20 companies in the in the S&P Small-Cap 600 Index and the S&P 400 Mid-Cap Index with the highest median effective income tax rates, according to the methodology described above:
|Company||Ticker||Industry||Median effective income-tax rate – past nine reported quarters||Minimum effective tax rate||Maximum effective tax rate|
|Clean Harbors Inc.||CLH, -0.02%||Environmental Services||75%||46%||259%|
|Brink’s Co.||BCO, -0.24%||Misc. Commercial Services||66%||26%||106%|
|Regis Corp.||RGS, +1.29%||Consumer Services||60%||43%||149%|
|Providence Service Corp.||PRSC, +0.11%||Misc. Commercial Services||57%||43%||73%|
|Heidrick & Struggles International Inc.||HSII, +1.29%||Personnel Services||56%||33%||95%|
|WellCare Health Plans Inc.||WCG, -1.84%||Managed Health Care||56%||35%||65%|
|Lumos Networks Corp.||LMOS, +0.03%||Telecommunications||54%||25%||63%|
|Molina Healthcare Inc.||MOH, -2.56%||Managed Health Care||54%||41%||63%|
|McDermott International Inc.||MDR, +0.14%||Oilfield Services/ Equipment||53%||28%||623%|
|Magellan Health Inc.||MGLN, -0.56%||Managed Health Care||50%||40%||91%|
|Rambus Inc.||RMBS, +1.03%||Semiconductors||49%||-1,109%||71%|
|Consolidated Communications Holdings Inc.||CNSL, +0.20%||Telecommunications||48%||39%||99%|
|Evercore Inc. Class A||EVR, -0.29%||Investment Banks/ Brokers||48%||16%||61%|
|Aerojet Rocketdyne Holdings Inc.||AJRD, +0.42%||Aerospace & Defense||48%||33%||54%|
|Barracuda Networks Inc.||CUDA, -0.62%||Information Technology Services||46%||-14%||68%|
|Cogent Communications Holdings Inc.||CCOI, +2.48%||Telecommunications||45%||14%||61%|
|ATN International Inc.||ATNI, +0.15%||Telecomunnications||45%||19%||278%|
|R.R. Donnelley & Sons Co.||RRD, +0.40%||Commercial Printing/ Forms||45%||-6%||219%|
|Resources Connection Inc.||RECN, +0.00%||Personnel Services||45%||41%||49%|
|Wisdom Tree Investments Inc.||WETF, +0.86%||Investment Managers||44%||41%||71%|
Because skewed data could temporarily lead to high effective tax rates, we are also showing the minimum and maximum effective income tax rates for the nine-quarter period.