The historic tax legislation that was signed into place at the end of 2017 has been great for the market. Tax reform is huge for earnings, which get impacted immediately, and it will also affect revenue growth as folks spend more of what they earn. That’s a heck of an anticipated one-two punch, and we’re already seeing it resonate.
Many companies have committed to returning some of their tax savings to their employees, with Lowe’s Companies, Inc. (NYSE:LOW) being the latest to jump on the bandwagon. It was announced last week that the company will give more than 260,000 of its part — and full-time employees up to $1,000 in bonuses thanks to the new legislation.
Other companies paying back their employees:
- AT&T Inc. (NYSE:T) was one of the first to announce a benefit for its workers. It will give more than 200,000 employees bonuses of $1,000.
- Fifth Third Bancorp (NASDAQ:FITB) is increasing its minimum wage to $15 an hour and handing out bonuses of $1,000 to 13,500 employees.
- Comcast Corporation (NASDAQ:CMCSA) will give $1,000 to more than 100,000 nonexecutive workers.
- Wells Fargo & Co. (NYSE:WFC) will up its minimum wage to $15 an hour.
The list goes on, and in the end, this will play a role in the growth of consumer spending. On that note, I think retailers like Hibbett Sports (NASDAQ:HIBB) and Target Corporation (NYSE:TGT) will do well.
The former is well off its highs and has strong upside potential from current prices. And while TGT is trading closer to record territory, I also believe it will reap the rewards of consumers having more cash in their pockets.
Another aspect of the tax windfall is that many companies are bolstering their contributions to retirement plans. This will benefit tax service providers like Automatic Data Processing (NASDAQ:ADP) and T. Rowe Price Group (NASDAQ:TROW).
In fact, ADP recently raised its full-year guidance as a result of the new legislation. Management said they are now looking for revenue growth of 7%-8% and for adjusted profit to increase 12%-13% in fiscal 2018. Previous forecasts were for 6%-8% revenue growth on a gain of 5%-7% in profit.
The benefits of tax reform are practically endless, and I look forward to being able to profit from the changing trends in the months and years ahead.
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