Page 36 of the February 1 issue of Fortune had an article discussing the amount of cash US companies hold abroad, and what might happen if tax rules were changed to encourage more of the money to come home. (see article here) I mentioned this issue back in a December 31 blog post (see here), but the Fortune article really shows the magnitude of the situation against utilities. The article shows $681B of accumulated foreign earnings at information technology companies at the end of 2015 as the sector with the most money stashed overseas. The smallest segment shown is Materials, which had $95B. There is also an “other” line, but the total was so small it wasn’t even quantified, and this is where utilities get lumped in. As I mentioned in my earlier blog post, AES and PPL are the utilities most likely to be impacted by any changes in repatriation rules. AES’ 2015 10K mentions that they have undistributed foreign earnings, but they are not quantified. (see p. 170) Page 141 of PPL’s 2015 10K says they have $4.6B of undistributed foreign earnings. If this money is suddenly allowed to come back to the US and companies use the funds to buy back stock, the utility sector is going to be left behind. Utilities already have the headwind of rising interest rates working against it, and repatriated cash would be another factor that could hurt the group’s relative performance.
The data used in the article came from a report by The Analyst’s Accounting Observer. The report is available for sale at this link.