What a difference a year makes.
Many publicly traded companies in Los Angeles were reeling last year after the financial crisis and a stock market plunge that wiped out billions in shareholder equity.
Since then, though, most of those companies have bulked up – adding muscle with a vengeance. The markets remain volatile, but that hasn’t stopped nearly two-thirds of L.A. public companies from gaining in value since June 30, 2009 according to the Business Journal’s annual mid-year ranking of L.A.’s largest public companies. Among the beneficiaries: 28 local companies that more than doubled their market capitalizations.
The gains are not limited to any particular industry, either. Shares of mall developer Macerich Co. rose 257 percent over the past year. Bank holding company East West Bancorp Inc. jumped 443 percent. Medical equipment maker Imaging3 shot up more than 1,000 percent.
“It’s been a pretty serious rebound,” said Ed Wedbush, president of downtown L.A. investment bank Wedbush Morgan Securities Inc. “The market was at 6,000 – the Dow Jones industrials – and now we’re at the 10,400 level. That’s a pretty significant comeback.”
The 200 largest public companies headquartered in Los Angeles County had a combined market capitalization of $379 billion as of the end of June, according to the Business Journal’s annual ranking. (See list on page 23.) That’s up 17 percent from the prior year, slightly less than the 21 percent rise in the S&P 500.
Leading the pack was Occidental Petroleum Corp., the Westwood-based oil and gas exploration giant. Thanks to a rise in oil prices, the company regained its spot atop the rankings after slipping to No. 2 in 2009. Its market cap topped $62 billion, up 17 percent from the year before, and could well go higher.
“The stock correlates very closely with the price of oil,” said Pavel Molchanov, an analyst with Raymond James & Associates in St. Petersburg, Fla., who is bullish on oil prices, which today run about $75 per barrel. “We project that oil will average $90 in 2011. That would mean a 20 percent increase into next year, and that would certainly translate into earnings growth for Oxy.”
Not every company benefitted. It was a tough year for local biotechnology firms, and homebuilders continued to take it on the chin.
But the theme for most stocks can be summarized in a word: rebound.
Banks that survived the financial crisis and are well-positioned to capitalize on the recovery saw their shares rise. Commercial real estate firms, too, have begun to see a light at the end of the tunnel.
Rising tide
Occidental was not the only oil company lifted by the rising tide. Breitburn Energy Partners LP’s market cap nearly doubled to $796 million, good enough for No. 49.
In one unusual instance, a company decided to change industries entirely to get in on the lucrative oil market. WPT Enterprises, which had owned the World Poker Tour before selling it off in November, reemerged in April as Voyager Oil & Gas Inc., which ranked No. 101. Executives acquired a Billings, Mont., company that holds oil and gas leases. Voyager’s market cap, $172 million, is seven times larger than WPT’s in 2009.
Some local companies, however, managed gains in spite of industry trends.
Retail continues to struggle as high unemployment has kept earning power suppressed, yet Macerich, the nation’s third largest mall owner and operator, racked up huge stock gains. The Santa Monica real estate investment trust, which has almost completed a $265 million renovation of Santa Monica Place, jumped from No. 28 last year to No. 11 this year, with a market cap approaching $5 billion.
Chief Executive Arthur Coppola told investors that 2009 was “the most difficult year in any of our recollection,” yet shareholders and analysts have been encouraged by action the company has taken to improve its outlook, including paying off debt and raising equity.
“Macerich has taken a number of steps to strengthen its balance sheet,” said Benjamin Yang, an analyst with New York-based Keefe Bruyette & Woods Inc. “Investors certainly believe the company has a brighter outlook today than it did a year ago.”
For some industries, though, there was no silver lining in the clouds. Uncertainty surrounding the health care reform package and continued economic concerns have hurt a number of local biotech stocks.
Amgen Inc. in Thousand Oaks slipped from No. 1 to No. 3 as its market cap fell slightly to $50.3 billion. However, it remains the nation’s largest biotech stock by market capitalization. MannKind Corp. in Valencia fell from No. 44 to No. 52 with a market cap of $725 million, though its problems had much to do with difficulties getting its experimental inhaled insulin product to market.
Leaving town
One biotech stock to rise, Abraxis BioScience Inc., did so largely because it is being sold at a premium. The West L.A. cancer drug maker, founded by billionaire Patrick Soon-Shiong, jumped from No. 26 to No. 15 after the June 30 sale announcement sent shares up more than 20 percent.
Abraxis is not the only stock Los Angeles is poised to lose. Northrop Grumman Corp., the fifth largest local company, is moving its headquarters to Falls Church, Va., in 2011. The aerospace defense contractor is relocating to the Washington, D.C., suburb to be closer to its customers, including the Pentagon.
Northrop is the latest in a series of high-profile exoduses of large companies. Hilton Hotels and DaVita Inc., a dialysis treatment provider, have each moved out of the L.A. area in the past two years.
Dennis McCarthy, president of Aries Management Inc., a financial services firm in Los Angeles, said Southern California’s dearth of large corporations is largely due to the consolidation that has swept through some of the area’s biggest industries, including entertainment and medical devices.
Regardless, the trend may soon subside if only because there are so few major companies remaining: Just eight local companies have market caps in excess of $10 billion.
“L.A. does not have a lot of really big companies left,” McCarthy said.
Still, some new companies are filling the void.
Several local businesses completed initial public offerings over the past year, including David Murdock’s produce giant Dole Food Co. and Colony Financial Inc., a subsidiary of Thomas Barrack’s private equity firm, Colony Capital.
Top of the Pack
Many of L.A.’s largest public companies rebounded this past year.
1. OCCIDENTAL PETROLEUM CORP.
Market Cap: $62.7 billion +17 percent
The oil and gas exploration company has benefited from a steady rise in oil prices.
2. WALT DISNEY CO.
Market Cap: $61.7 billion +42 percent
Entertainment giant riding high on movie hits and rebound of theme park business.
3. AMGEN INC.
Market Cap: $50.4 billion -6 percent
Biotech giant hurt by drug approval delays and worries over health care overhaul.
4. DIRECTV INC.
Market Cap: $31.0 billion +24 percent
High-profile merger and spinoff propelled satellite-television provider sky high.
5. NORTHROP GRUMMAN CORP.
Market Cap: $16.4 billion +11 percent
Aerospace giant won a string of large government contracts.
