With the passage of tax reform now looking very probable, many investors are wondering what this means for them and for many of the top companies in America. Credit Suisse has issued a list of likely beneficiaries from tax reform.
It one thing have a stated tax rate and an entirely different issue what the real effective tax rate is that is actually paid to the government. Credit Suisse noted that while the current statutory rate is 35%, the average rate paid is actually about 27%. If the new tax rate for corporations moves toward 20%, then Credit Suisse notes that the consensus earnings per share on the S&P 500 Index would jump from $146 to $160.
One warning that Credit Suisse has is that the full impact of the new tax code is impossible to calculate, with many unknown behavioral changes. These include the use of repatriated assets for capital spending, stock buybacks, mergers and for the stimulative benefits to consumer spending.
Credit Suisse went on to identify the four domestically oriented sectors, with the highest effective tax rates being utilities, industrial services, telecom and retail. The report does warn about uncertainties persisting:
Even after the President signs tax reform into law, company-level implications will remain unclear for quite some time. The only certainty is that investors will be left with greater uncertainty on the trajectory of corporate earnings and cash flows for 2018-19.
Note that Credit Suisse’s analysis may look different from other analyses based on what it considers taxes here and abroad and on other factors. Some of the rates may even be out of date by the time real tax reform comes to pass.
The numbers used in this report were derived from Credit Suisse’s own reporting and from Standard & Poor’s and FactSet. They were also shown to be based on three-year trailing effective tax rates rather than forecast-based for what would have been the case in 2017 and 2018 without the benefit of tax reform.
Here are the 15 companies identified by Credit Suisse as having the highest effective tax rates.
Centene Corp. (NYSE: CNC), which operates as a diversified health care enterprise offering programs and services to underinsured and uninsured individuals, was shown to have an effective tax rate of 46.8% in the Credit Suisse report. That is the highest on the list of the companies. Centene shares were trading up 0.4% at $101.46 on Monday, in a 52-week range of $54.40 to $103.49. Its consensus analyst price target is $107.71.
Humana Inc. (NYSE: HUM), in health insurance and related activities, was shown in the report to have the second highest tax rate at 44.9%. Humana was trading up 0.9% at $260.85 a share. The 52-week trading range is $186.25 to $264.56, and a consensus price target is $265.35.
TechnipFMC PLC (NYSE: FTI), a U.K.-based provider of technologies, systems and services for oil and gas projects, was shown by Credit Suisse to have a U.S. tax rate of about 44.1%. That puts it at third on the list. Its shares were trading up 0.8% at $29.48, in a 52-week range of $24.53 to $37.09 and with a consensus price target of $35.91.
Kinder Morgan Inc. (NYSE: KMI) has the highest tax rate of all current energy infrastructure players, according to Credit Suisse. It was ranked fourth on the list of all these companies, with a 44.0% effective tax rate. Please note that some of that may be due to its conversion from a master limited partnership (MLP) back into a corporation, but we did not see any details in the notes. On last look, Kinder Morgan was trading flat at $17.40. It has a 52-week range of $16.68 to $23.01 and a consensus price target of $23.44.
Broadcom Ltd. (NASDAQ: AVGO), the communications chip and equipment players, was shown to have a 43.8% effective tax rate. As a reminder, this may be changing as Broadcom has decided to moves its post-Avago merger headquarters back to the United States — and it is now trying to engage in a hostile takeover of rival Qualcomm. Broadcom shares were trading flat at $271.78, in a 52-week range of $162.40 to $285.68. The consensus analyst target is $293.93.