Stock investors can count on one thing amid the uncertainty about the final details of Washington's sweeping tax reform legislation: one big area of agreement is that both the House and Senate bills reduce the top federal income tax rate on corporations from 35% to 20%. Credit Suisse Group (CS) has identified the 50 members of the S&P 500 with the highest effective tax rates, ranging from 36.6% to 46.8%. These companies should be prime candidates to see significant boosts in their earnings and stock prices from a falling tax rate.

Among the 50 companies, we focus on twelve that exemplify the winners: Inc. (AMZN), Broadcom Ltd. (AVGO), Juniper Networks Inc. (JNPR), CVS Health Corp. (CVS), Chipotle Mexican Grill Inc. (CMG), Regeneron Pharmaceuticals Inc. (REGN), Aetna Inc. (AET), Dollar General Corp. (DG), Southwest Airlines Co. (LUV), Nordstrom Inc. (JWN), Anthem Inc. (ANTM​) and Union Pacific Corp. (UNP​). These findings appear in Credit Suisse's Equity Strategy Navigator--December 2017 report, dated December 4.

The Big Picture

If the top federal tax rate indeed falls to 20%, and if this change becomes effective in 2018, Credit Suisse estimates that consensus EPS for the S&P 500 Index (SPX​) will rise from $146 to $160, an increase of 9.6%. They also estimate that S&P 500 corporations pay an average effective rate of 26.2%. However, companies in domestically-oriented industry groups tend to pay well above the average. At the top of the list compiled by Credit Suisse are retailing (35.0%), telecom (33.7%), industrial services (32.5%), utilities (31.5%), and staples retailing (31.3%).

Retailing Woes

The 50 companies identified by Credit Suisse as having the highest effective tax rates include 10 retailers, the most from any industry group. Online retailing colossus is top among retailers and number six overall with an effective rate of 43.4%. The other nine high-tax retailers are traditional brick-and-mortar merchants beset by heavy competition from Amazon, including department store Nordstrom and discount merchandiser Dollar General. The irony is that tax relief desperately needed by the latter will come at the expense of giving their top rival yet more financial resources. CVS is classified by Credit Suisse as a food and staples retailer, one of the industry groups with the top five effective tax rates, as noted above.

High Tax Outliers

Semiconductor manufacturer Broadcom and computer networking specialist Juniper stand out as the only members of the technology sector on the top 50 list. By contrast, Credit Suisse calculates that tech hardware companies as a group have a below-average effective tax rate of 22.8%. Pharmaceuticals and biotech is another industry group with an effective tax rate (18.9%) under the S&P 500 average, and Regeneron is one of only two from this industry in the top 50.

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