Gone to Markets

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Gone to Markets
Special Report: Largest and Most Profitable Public Companies

The aphorism “a rising tide lifts all boats” has played true for the stock performance of Los Angeles County’s largest public companies over the past year.

The companies on the Business Journal’s annual midyear ranking by market cap had a combined capitalization of $471 billion as of June 30. That’s up roughly 27 percent and in line with broader market indicators such as the S&P 500 and the Dow Jones industrial average. And it beats last year’s 17 percent gain as the economic recovery got under way.

Occidental Petroleum Corp. remained the county’s largest company this year as its market cap jumped by 35 percent to $84.6 billion, roughly double the gain of last year. In addition, Walt Disney Co., DirecTV Inc. and Public Storage were among 15 companies on the Business Journal’s list to also enjoy double-digit percentage gains in valuation.

Still, the recovery clearly slowed, as the previous year 28 companies saw their market caps increase by double-digit percentages.

“We had this massive exit of investors out of the stock market, and many have yet to fully return,” said Bryant Riley, chairman of West L.A. investment bank B. Riley & Co. “Investors are holding fewer stocks.”

Even so, the larger stock market continues to recover, and most L.A.-area companies have come along for the ride. More than two-thirds of 180 companies on the Business Journal’s list that have been public more than a year rose in value over the past 12 months.

None benefited more than Westwood independent oil and gas giant Occidental, which has been riding a wave of higher oil prices and a pipeline of productive oil fields that span the globe.

“Oxy has been a way to play the surge in oil prices with a lot less risk than some competitors,” said Pavel Molchanov, an analyst at St. Petersburg, Fla.-based Raymond James and Associates. “It did have to shut down operations in Libya, but its other fields in the Middle East are in relatively quiet countries. It really doesn’t do offshore drilling, so it wasn’t hurt by the Gulf oil spill last year.”

Disney gained 20 percent appreciation in its market cap this year to $73.8 billion, retaining its No. 2 spot on the Business Journal’s list. The Burbank entertainment giant saw recession-weary consumers return to its theme parks, head to the theaters for its family films, and boost ratings for its broadcast and cable TV properties.

Amgen Inc., which saw its valuation slide 6 percent the previous year as investors punished the Thousand Oaks biotech for revenue and net income declines, more than made up that loss, growing 8 percent to $54.3 billion to retain its No. 3 spot.

Amgen benefitted from U.S. and European regulatory approvals for its bone drug denosumab, which is marketed under various names. Analyst Michael Yee, who covers the company for Toronto-based RBC Capital Markets Corp., said Amgen might have attracted more interest were it not for the continued shadow over its cornerstone anemia drug franchise, drugs Aranesp and Epogen, which was hurt by safety concerns and more restrictive Medicare reimbursement policies.

“Denosumab should eventually grow to blockbuster status and offset more than this decline but it’s still early in the launch,” Yee said. “The stock is cheap and likely to go up long term.”

El Segundo’s DirecTV, the nation’s largest satellite TV provider, retained its No. 4 spot on the list with a 26 percent appreciation in its valuation that slightly exceeded the previous year’s 24 percent. The $39 billion stock got a boost this spring after the company reported promising results from its foray into the Latin American satellite television market, where it added close to a half-million subscribers in the first quarter alone.Real estate-related stocks, especially real estate investment trusts, also benefited during the tepid recovery

Public Storage pushed defense giant Northrop Grumman Corp. out of the top five on the list after the Glendale REIT’s valuation jumped 37 percent to $20.4 billion.

Michael Mueller, an equity analyst for New York-headquartered JPMorgan Chase Bank, said cautious investors looking for a real estate play have been paying more attention to Public Storage over the past year. The company did a good job of keeping occupancy rates high at its self-storage facilities without significantly cutting rent rates, and has taken steps to share its strong cash flow with investors.

“Public Storage historically has paid low dividends because it wanted to invest its cash back into growing the business,” Mueller said. “But during the recession, other REITS cut their dividends. As the economy has improved, Public Storage has raised its dividend by 75 percent, which makes them a lot more competitive.”

Real estate-focused companies such as Public Storage are among the largest sectors among L.A.’s biggest companies. One-third of the list’s 15 largest companies are either REITS or service companies, including Long Beach health care REIT HCP Inc., which saw its market cap jump 50 percent to $14.9 billion as its net income soared 132 percent. It moved two places up the Business Journal’s list to No. 7.

Commercial real estate services giant CB Richard Ellis Group Inc., which saw its stock plunge during the downturn, rebounded with an 87 percent surge in share price as its net income quintupled. The West L.A. company, which brokers and manages properties worldwide, rose two places on the list to No. 11.

Among the biggest movers on the list was Herbalife Inc., which again topped the Business Journal’s separate list of most profitable companies. Investors impressed by the company’s 80.2 percent return on equity over the past three years, have boosted its valuation by nearly 150 percent, moving the company up five places on the largest companies list to No. 13.

The downtown L.A. company, which relies on a network of independent multilevel distributors, has expanded its business model from sales of packaged weight loss and nutritional supplements to daily individual servings to customers at storefront and in-home clubs both here and abroad. Except for China, the distributors bear the capital costs of those clubs.

“We believe that Herbalife shares offer an opportunity to benefit from economic recovery,” said John Staszak, an analyst for New York’s Argus Research Co., in a recent note to investors.

Joining the Business Journal’s list are several companies that have gone public over the past year. The highest ranked is Century City’s Air Lease Corp. The company, which leases fleets of jets to airlines, was founded by L.A. billionaire Steven Udvar-Hazy and debuts on the list at No. 24 with a market cap of $2.3 billion.

Monrovia prepaid debit company Green Dot Corp., founded by Chief Executive Steve Streit, lands at No. 36 with a valuation of $1.4 billion. Beverly Hills 3-D film technology company RealD Inc. ranks No. 36 with a $1.4 billion market cap.

Making its final list appearance is defense giant Northrup Grumman, which is relocating its corporate headquarters this summer to the Washington, D.C., area. Its $19.2 billion market cap places the company at No. 6.

The Top 5

1. OCCIDENTAL PETROLEUM CORP.

Market Cap: $84.6 billion +35 percent

Oil and gas exploration company continued to benefit from steady rise in oil prices and modest risk profile.

2. WALT DISNEY CO.

Market Cap: $73.8 billion +20 percent

Entertainment giant boosted by higher TV

ratings and ad revenue, well-received film releases and rebound of theme park business.

3. AMGEN INC.

Market Cap: $54.3 billion +8 percent

New drug approvals offset concerns over weakness in the biotech giant’s core anemia drug business.

4. DIRECTV INC.

Market Cap: $39.0 billion +26 percent

Nation’s largest satellite TV provider sells investors on overseas expansion plans.

5. PUBLIC STORAGE

Market Cap: $20.4 billion +37 percent

Well-run REIT specializing in self-storage facilities gets investor kudos for raising dividends.

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