Wyatt Research Week in Review: April 3-9

For many Americans, mid-April is a time of both hope and fear.
On the one hand, spring is in the air and the promise of summer ballgames and barbecues is on deck. On the other, it’s time to pay the piper.
The tax filing deadline is April 18 this year. Procrastinators have been given a three-day respite from the traditional filing deadline due to the observance of Emancipation Day on April 15.
So brick-and-mortar tax preparers like H&R Block (NYSE: HRB) and online tax software providers like Intuit (NASDAQ: INTU) have a few more days to make hay, while John Q. Taxpayer has an extra weekend of fiscal fear and loathing.
Yet in an unexpected narrative twist, some major U.S. corporations are sharing in the tax season misery.

The Taxman Cometh

On Monday, the Department of the Treasury unexpectedly “issued temporary and proposed regulations to further reduce the benefits of and limit the number of corporate tax inversions,” as a Treasury press release stated.
The Treasury statement went on to expound its position that cross-border mergers “should be driven by genuine business strategies and economic efficiencies, not a desire to shift the tax residence of a parent entity to a low-tax jurisdiction simply to avoid U.S. taxes.”
Tax inversions refer to the practice whereby a U.S. corporation merges with a company domiciled in a country with a lower corporate tax rate. The incorporation is shifted to the foreign country, thus reducing the new entity’s effective tax rate, while business operations on U.S. soil continue as usual.
Notable examples of tax inversion deals include Burger King teaming up with Ontario-based Tim Hortons in 2014 to form Restaurant Brands International (NYSE: QSR), and Medtronic’s (NYSE: MDT) relocation to Ireland the following year through its acquisition of fellow medical device company Covidien.
The Treasury Department’s action is a clear response to the mega-deal announced in the waning days of 2015 that would have paired U.S. pharmaceutical giant Pfizer (NYSE: PFE) with Allergan PLC (NYSE: GN). Like Covidien, Allergan calls the Emerald Isle home.
Chalk one up for Uncle Sam.
On Thursday, Pfizer and Allergan mutually called off their $160 billion marriage, citing irreconcilable differences with the Treasury Department’s power play.
In an op-ed in The Wall Street Journal on Thursday, Pfizer CEO Ian Read didn’t mince words in expressing his displeasure. In reference to a U.S. tax system he believes is “broken,” Read stated that the Treasury Department’s action is an “ad hoc and arbitrary attempt to single out and damage the growth opportunities of companies operating within the current law (that) is unprecedented, unproductive and harmful to the U.S. economy.”
Read’s tirade in the Journal recalls an interview Charlie Rose conducted with Apple (NASDAQ: AAPL) CEO Tim Cook on “60 Minutes” last December.
An uncharacteristically rattled Cook called a 2013 Senate subcommittee grilling on alleged corporate tax avoidance “total political crap,” and labeled the U.S. tax code as being “made for the industrial age, not the digital age.”
It was no surprise that Cook and company were branded the poster children for tax dodging. As the world’s largest publicly traded company, Apple is naturally in the cross hairs of any debate about corporate profits. At the time of the “60 Minutes” interview, Apple had $181 billion in cash held overseas – more than any other U.S. company.
But at the same time, the primary duty of the CEO of a publicly traded company is to maximize value for shareholders. Whatever the tax code allows, a chief executive should utilize – and dare I say exploit.
Here are some of my favorite Wyatt Research articles from the past week:
The New Must-Own Airline Stock – The airline industry just got a little smaller. The latest news is that Alaska Air (NYSE: ALK) is buying up the Richard Branson-backed airline, Virgin America (NYSE: VA). It’s the first airline industry merger since 2013, when US Airways and American Airlines (NYSE: AAL) combined.
That Robo-Adviser Is More Human Than You Think – Consulting firm A.T. Kearney expects assets managed by robo-advisers to grow 68% annually and hit $2.2 trillion by 2020. But just who or what are these asset-gobbling, job-destroying robo-advisers?
Is It Time to Take a Shot With Time Warner Stock? – Monday’s NCAA men’s basketball national championship game was a landmark event not only for Villanova fans, but for Time Warner Inc. (NYSE: TWX) as well.
The Great China Biotech Quest – China now trails only the U.S. as the world’s largest pharmaceuticals market. It is forecast to be a $200 billion pharma market by 2020. And there is an incredible amount of drug research going on right now in China. That’s a fascinating development in a country that hasn’t produced a new medicine for the global markets since the 1970s.
Is It Still Too Soon to Bank on Big-Bank Dividends? – The fortunes of big banks were expected to take flight with the Federal Reserve’s first interest rate increase this past December. But like so much of what is packaged and sold by Wall Street, the goods failed to meet buyer expectations.
The Top 2 Cheap Gas Stocks for the Summer Driving Season – Summer is just a few months away and gasoline prices are at multi-year lows. With cheap gas prices, that means households will have more money for discretionary purchases, as well as more money for traveling.
Natural Gas: In Demand With Consumers, Out of Favor With Investors – Demand for natural gas as a power source keeps growing, according to the U.S. Energy Information Agency. It recently forecast that 2016 will be the first year the United States burns more natural gas for power than coal. Yet natural gas was one of the worst-performing commodities in the first quarter, down 18.1%.
A 10% MLP Yield Without Energy Exposure – Many investors might be wary at the very sight of the acronym “MLP” these days. But this master limited partnership has nothing to do with oil and gas and has paid 45 consecutive quarterly distributions.
Have a great weekend!