Goldman Sachs Group Inc. (GS) has released a detailed report estimating that tax reforms planned in Washington could prompt S&P 500 companies to repatriate at least $250 billion in cash to the U.S. Those funds would pay for stock buybacks, dividend increases and other investments, helping to boost the shares prices of technology, health care, energy, and financial companies in particular.

Five representative companies among the 20 mentioned by Goldman are: computer and smartphone maker Apple Inc. (AAPL); industrial products and financial services company General Electric Co. (GE); biotech firm Amgen Inc. (AMGN); pharmaceuticals manufacturer Merck & Co. Inc. (MRK); and apparel, accessories, and home furnishings designer and distributor Ralph Lauren Corp. (RL). 

Massive Cash Stashes

For the S&P 500 companies as a group, Goldman calculates that they have $2.5 trillion of overseas earnings that are permanently reinvested abroad, including untaxed cash holdings of $920 billion. The median S&P 500 company has $2 billion in overseas cash. 

Four of the five companies mentioned above, however, have overseas cash hoards far in excess of $2 billion: Apple, $216 billion; GE, $35 billion; Amgen, $36 billion; and Merck, $22 billion. Ralph Lauren has overseas cash of just $1 billion, but those holdings account for a large percentage of its market capitalization.

Big Percentages of Market Cap

Based on a Republican-backed proposal in Congress, Goldman assumes that the tax rate on repatriated cash would be 8.75%, and that the tax rate on repatriated earnings would be 3.5%. Goldman calculates that overseas cash, after deducting the assumed 8.75% repatriation tax, accounts for 3% of the market cap for the median S&P 500 corporation. This ratio is much higher for the five highlighted companies: Apple, 25%; GE, 14%; Amgen, 24%; Merck, 10%; and Ralph Lauren, 20%.

All these companies currently pay dividends and engage in stock buybacks, both of which might be increased with repatriated cash. Their current dividend yields and trailing four-quarter buyback yields are, respectively, per Goldman: Apple, 2.4% and 6.0%; GE, 3.1% and 4.2%; Amgen, 2.8% and 2.9%; Merck, 3.2% and 2.5%; and Ralph Lauren, 2.2% and 1.7%.

The estimated EPS growth rates for 2018 and forward P/E ratios for these five companies are, respectively, per Goldman: Apple, 17% and 14; GE, 8% and 14; Amgen, 2% and 15; Merck, 8% and 16; and Ralph Lauren, 0% and 16.

Other Big Market Cap Impacts

Goldman's report, dated September 25, lists the 20 S&P 500 corporations with the largest ratios of after-tax overseas cash to market cap. Six other companies in this group have overseas cash equal to at least 20% of their market cap. They are, with Goldman's respective figures for pre-tax overseas cash and the after-tax ratio of overseas cash to market cap: Cisco Systems Inc. (CSCO), $71 billion and 37%; Oracle Corp. (ORCL), $48 billion and 22%; Microsoft Corp. (MSFT), $128 billion and 20%; NetApp Inc. (NTAP), $5 billion and 36%; Qualcomm Inc. (QCOM), $30 billion and 35%; and TE Connectivity Ltd. (TE), $7 billion and 20%. All these companies are in the information technology sector, as are 11 of the 20 companies overall.

Rounding out Goldman's list are these nine companies: Waters Corp. (WAT), $3 billion and 17%; Western Digital Corp. (WDC), $5 billion and 16%; Cytrix Systems Inc. (CTXS), $2 billion and 16%; Foot Locker Inc. (FL), $1 billion and 15%; Abbott Laboratories (ABT), $14 billion and 14%; Juniper Networks Inc. (JNPR), $2 billion and 13%; Priceline Group Inc. (PCLN), $13 billion and 13%; VeriSign Inc. (VRSN), $1 billion and 12%; and Johnson & Johnson (JNJ), $41 billion and 10%.

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