Wednesday, March 24, 2010

Healthcare act to cost Caterpillar a minimum 16cents in 2010 (CAT)

Caterpillar just put out an 8k explaining that the just-passed healthcare bill will result in a $100million hit to earnings:
As a result of the Patient Protection and Affordable Care Act (H.R. 3590) signed into law on March 23, 2010 (the “Act”), beginning in 2011 the tax deduction available to Caterpillar Inc. (“Caterpillar”) will be reduced to the extent its drug expenses are reimbursed under the Medicare Part D retiree drug subsidy (RDS) program.  Although this tax increase does not take effect until 2011, Caterpillar is required to recognize the full accounting impact in its financial statements in the period in which the Act is signed.  As retiree healthcare liabilities and related tax impacts are already reflected in Caterpillar’s financial statements, the change will result in a charge to Caterpillar’s earnings in the first quarter of 2010 of approximately $100 million after tax.  This charge reflects the anticipated increase in taxes that will occur as a result of the Act.  As mentioned on page A-106 of Caterpillar’s Form 10-K for the year ended December 31, 2009, Caterpillar’s 2010 Profit Outlook is based on tax law in effect as of February 19, 2010 and does not include the impact of the Act.
So the math goes thus...$100million  = 16cents per share.  Caterpillar's 2010 EPS drops from $2.66 to 2.49.  Apply the same 15.5 PE that the current stock trades at, and the shares are now worth 38.70, down from 41.20.  With  624million shares outstanding, CAT is worth $1.55billion less than it was before this bill.  And that's before massive increases to other employee premiums.

Copyright 2010 AlphaNinja

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