BP plc BP is expected to gain from the recently enacted changes to U.S. corporate taxes.
BP expects future after-tax earnings to be favorably impacted owing to the cutback of the federal corporate income tax rate to 21% from 35%. This is effective from Jan 1, 2018.
The change in the corporate income tax rate is subject to several provisions in the legislation, which is being reviewed by the company.
BP’s U.S. deferred tax assets and liabilities are required owing to the lowering of the U.S. corporate income tax rate to 21%. BP projects a one-off non-cash charge of about $1.5 billion in fourth-quarter 2017 income statement. The earnings will be released on Feb 6, when the final actual charge will be recognized.
As energy industry is capital intensive, the new changes in corporate taxes are beneficial to this sector. The companies will be able to deduct capital expenditures from taxable income, immediately, per the provisions of the tax reform bill. In the current scenario, capital expenditures cannot be deducted from the tax in the year they are incurred. Consequently, the domestic companies need to plan judiciously regarding capital expenditure.
In 2018, the companies’ tax bills will be lowered significantly due to higher deductions. The companies will have more cash in hand to fund capital expenditures, acquisitions and share repurchases among others.
Therefore, some oil majors with huge capital spending like ExxonMobil Corp XOM, Chevron Corporation CVX and Royal Dutch Shell plc RDS.A are likely to gain from these changes.
Price Performance
Shares of BP have gained 9.5% compared with the industry’s rally of 6.3% in the last three months..jpg)
Zacks Rank & Key Picks
BP carries a Zacks Rank #3 (Hold). A few better-ranked players in the energy sector include Holly Energy Partners, LP HEP, HollyFrontier Corporation HFC, and Northern Oil and Gas Inc NOG. All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Holly Energy Partners, owner and operator of refined product pipelines and terminals, delivered an average positive earnings surprise of 57.14% over the trailing four quarters.
Headquartered in Dallas, TX, HollyFrontier is involved in refining of petroleum. The company delivered an average positive earnings surprise of 8.04% in the last four quarters.
Northern Oil and Gas, based in Minnetonka, MN, is an independent energy company. The company delivered an average positive earnings surprise of 175.00% during the same time frame.
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