Investing

Credit Suisse Identifies 15 Companies as Top Tax Reform Winners

Jon C. Ogg

Published: December 4, 2017 11:25 am

Last Updated: January 12, 2020 5:47 am

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 Some of the rates may even be out of date by the time real tax reform comes to pass.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.

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Amazon.com Inc. (NASDAQ: AMZN) may feel like a mistake on this list, due to its actual earnings being so low due to low margins in many key operations. Still, Credit Suisse showed its effective tax rate as 43.4%. The stock was trading down 0.2% at $1,160.42. The 52-week range is $742.00 to $1,213.41. Amazon has a consensus price target of $1,249.82.

Juniper Networks Inc. (NYSE: JNPR), a rival of Cisco Systems in networking technology and equipment, was shown by Credit Suisse as having a sharp 42.9% effective tax rate. The stock recently traded down 0.4%, at $28.27, versus a 52-week range of $23.87 to $30.96. The consensus price target is $27.63.

Schlumberger Ltd. (NYSE: SLB) was shown to have an effective tax rate of 41.7% in the Credit Suisse report. This oil services goliath operates all over the world, and much of its business is outside of the United States. Schlumberger shares were trading up 1.3% to $65.55. Their 52-week range is $61.02 to $87.84, and the consensus price target is $74.58.

Nordstrom Inc. (NYSE: JWN) tops the department store retailers with what Credit Suisse is calling an effective tax rate of 41.6%. The stock was trading up 2.7% to $46.72, which compares to a 52-week range of $37.79 to $61.85. The consensus price target is $42.00.

Anthem Inc. (NYSE: ANTM), the health insurer behind the Blue Cross and Blue Shield program, was also high on the list with a 41.4% effective tax rate. Anthem was trading down 0.3% at $230.91 on last look, in a 52-week range of $140.50 to $236.39. It has a consensus analyst target of $232.17.

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Aetna Inc. (NYSE: AET), having reached a merger agreement with CVS, was shown to have an effective tax rate of 41.3%. The company even has said that tax reform played a part into the economics of this merger. Aetna shares were trading up about 1% to $183.25, in a 52-week range of $116.04 to $192.37 and with a consensus price target of $186.00.

Helmerich & Payne Inc. (NYSE: HP) is a contract driller for oil and gas wells in the United States and internationally. Credit Suisse showed its effective tax rate as being 40.8%. Helmerich & Payne traded down 0.3% to $59.40, versus a 52-week range of $42.16 to $85.78. The consensus price target is $50.81.

Lowe’s Companies Inc. (NYSE: LOW) was considerably higher on the list than rival Home Depot, with an effective tax rate of 39.7% per the Credit Suisse data. Lowe’s shares were trading up 3.3% to $87.00. They have traded between $70.49 and $87.26 in the past year, and the consensus analyst price target is $87.52.

American Water Works Co. Inc. (NYSE: AWK) was surprising to see on the list, as it is the largest public U.S. water utility. Credit Suisse showed its effective tax rate to be 39.3%. American Water Works was last seen trading up 0.4% at $91.58, in a 52-week range of $69.96 to $91.97 and with a consensus price target of $90.64.

CVS Health Corp. (NYSE: CVS) comes in at number 15 (discounting IQVIA and its 39.2% effective tax rate, which was skipped in coverage due to conflicting data). CVS Health is officially trying to acquire Aetna (which noted tax benefits as a portion of the deal’s economics), and its effective tax rate according to Credit Suisse is listed as 38.9%. The stock was trading down 3.3%, at $72.67 in a 52-week range of $66.45 to $84.72. Its consensus analyst price target is $84.76.