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interest tax shield later in this report). Deleveraging balance sheets may also be spurred
by a continued environmwnt of rising interest. Leverage for S&P non-Financials has
steadily been ticking up over the last few years, and, if we exclude the cash-rich
Technology sector, leverage is approaching all-time highs (Chart 9).

Table 9: S&P 500 valuations: October 2004 vs. today
Metric 10/31/2004 Today (12/31/16)
Fwd P/E 15.6 16.9
Trailing P/E 16.7 22.0
Median Fwd P/E 16.2 17.3
P/B 2.8 2.9
EV/EBITDA 11.6 11.7
P/S 1.5 2.0
EV/Sales 2.2 2.3
Source: FactSet, S&P, BofA Merrill Lynch US Equity & US Quant Strategy

Chart 8: Average Annual Return of Russell 1000 Top Quintiles by factor
(1986-present)
[Bar Chart Visual]
10.0% Benchmark
11.7% High Share Repurchase
13.5% INEXPENSIVE Companies with High Share Repurchase
Note: valuation factor used to determine inexpensive companies is FCF/P
Source: FactSet, BofA Merrill Lynch US Equity & US Quant Strategy

Exhibit 1: BofAML Global Fund Manager Survey (January 2017): What
would you most like to see companies do with cash flow?
[Line Chart Visual]
Return cash to shareholders (share buybacks / dividend payments / cash acquisitions)
Increase capital spending
Improve balance sheets (repay debt, top up company pension plan)
Source: BofA Merrill Lynch Global Fund Manager Survey (17 January 2017)

Chart 9: Net Debt/EBITDA for the S&P 500 ex Financials (and excluding
Energy and Tech)
[Line Chart Visual]
S&P 500 ex Financials
S&P 500 ex Fins. & Energy
S&P 500 ex Fins. & Tech
Avg.
Source: FactSet, BofA Merrill Lynch US Equity & US Quant Strategy

Potential EPS impacts
$8-9 (6-7%) hit to GAAP EPS from the mandatory tax on accumulated overseas
profit
We estimate that a tax of accumulated overseas profits of $1.2tn would result in a cash
tax impact of $100-120bn (which may be allowed to be paid over 8-10 years), and a
one-time hit to GAAP EPS of $8-9 (a lower $65-80bn, given that a several large
multinationals such as AAPL already provision for US taxes on a portion of their
overseas profit, resulting in effective US tax rates well above the US statutory rate). Our
analysis assumes Trump’s/the Blueprint’s proposed rates of 8.75%/10%, and that all
overseas profits are hit with this one-time tax, as suggested by their plans. See Table
10.

Note that our estimate of ~$1.2tn of cumulative profits overseas is based on estimates
from us, our fundamental analysts, and company filings, where in many cases only
overseas cash but not other indefinitely invested earnings are disclosed/estimated.
Thus, the tax on these earnings could be slightly higher, though the Blueprint would tax
earnings not held in cash at a lower 3.5% rate. (We conservatively assume our estimated
$1.2tn is all cash and use the higher 8.75% rate under the Blueprint and 10% under
Trump’s plan in our below analysis).

10 Equity Strategy Focus Point | 29 January 2017
Bank of America
Merrill Lynch
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