It was a good year to be Walt Disney Co.
The Burbank entertainment giant shrugged off market turbulence and boosted its stock price 17 percent as families flocked to its popular theme parks. In the process, it became the largest publicly traded company in Los Angeles County.
But most other local companies weren’t as eager to celebrate the past year.
The 175 companies on the Business Journal’s annual ranking by market cap had a combined capitalization of $455 billion as of June 29, a meager 1 percent gain over the previous 12 months. However, that was generally in line with weighted market indices that rose a few points higher, such as the S&P 500, when the local list is similarly adjusted for size.
“L.A. is such a large economy that you hardly ever can outrace the broader markets,” said John Anh, president of West L.A. investment bank B. Riley & Co. “Investors are worried about consumer spending and the European debt crisis. People just don’t want to take a lot of risk in the equity markets right now.”
This is quite a change from last year, when, broad market gains lifted most local stocks, which racked up a 27 percent increase in market capitalization.
Signaling just how weak investor confidence is this year, only 59 of the 175 companies on this year’s list posted double-digit gains in market cap, down from 94 last year. Meanwhile, 73 companies posted double-digit drops in market cap. Much of the action was driven by company- or industry-specific circumstances rather than overall market conditions.
Take DirecTV, which retained its No. 4 place on the list even as it lost nearly one-fifth of its market cap as it struggled to sustain subscriber growth. Then there’s Occidental Petroleum Corp., which lost its spot as the largest local company amid declining oil prices.
But the meager growth in market capitalization tells only part of the story. Stack up the market cap of the 175 companies on this year’s list against the companies on last year’s list and the combined capitalization actually fell 3.4 percent.
That’s largely because giant Northrop Grumman Corp. – No. 6 on last year’s list with $19.3 billion in market cap – relocated its headquarters to Falls Church, Va., and was replaced on the list. It was yet another example of Los Angeles losing a Fortune 500 company.
“These companies with huge market caps, they have facilities spread around the nation and the globe,” Anh said. “With California’s business climate considered so unfriendly to business and likely to remain so for the foreseeable future, these companies repeatedly ask themselves why they are headquartered here.”
Market volatility
In many years, the loss of a Northrop would be offset by a healthy dose of new public companies. But not this year. Thanks to the volatility of the markets over the past year, only four initial public offerings went forward and they added less than $7 billion in market capitalization. The largest of these was downtown L.A.’s Oaktree Capital Group LLC, which added $5.2 billion in market capitalization to the list.
Several companies filed for IPOs, but didn’t pull the trigger and go to market. Most prominent among these was aircraft leasing giant International Lease Finance Corp., which filed for an IPO last summer. If and when the Century City company goes to market, it’s expected to have a market cap of $8 billion to $10 billion.
Despite the difficult market, Disney’s stock rose 18 percent to close June 29 at $86.7 billion. That $13 billion gain in market cap was the largest on this year’s list and powered the Burbank entertainment giant past Occidental into the No. 1 spot.
“Disney shares have appreciated as the improvement in the economy boosted attendance and per-capita spending at its theme parks,” said David Joyce, an analyst with Miller Tabak & Co. LLC in New York.
Disney’s gain came despite the biggest movie flop in years with its sci-fi adventure epic “John Carter.” Disney officials announced in March that the film lost $200 million; a month later, studio chief Rich Ross resigned. Fortunately for the company, a few weeks later the studio’s “The Avengers” took in more than $1 billion in global ticket sales in its first three weeks, along with millions more in product sales.
Occidental, meanwhile, shed $15 billion in market cap for an 18 percent drop in the 12 months ended in June. The main culprit: falling crude oil prices. Unlike vertically integrated oil companies such as Irving, Texas’ Exxon-Mobil Corp., Occidental has no refining facilities, so it only sells crude oil. And with the global economy slowing over the past nine months, crude oil prices have plummeted.
“The vast majority of Oxy’s decline in market cap has come from the recent decline in oil prices,” said Pavel Molchanov, an analyst with St. Petersburg, Fla.-based Raymond James & Associates.
Also losing big in market cap was No. 4 DirecTV, which shed more than $7 billion, or 18 percent. The El Segundo satellite TV provider has been hit hard by slowing penetration in the U.S. market.
“Unlike cable companies, DirecTV cannot monetize subscribers through the Internet – all they have is the satellite dish,” said Marci Ryvicker, senior analyst with Wells Fargo Securities in New York. “It’s tough for them to branch out and make money elsewhere in the U.S. market.”
No. 3 Amgen Inc. posted a modest gain of 5 percent in its market cap. Investors snapped up shares as two of the Thousand Oaks biotech giant’s new bone treatment drugs offer the best chance for long-sought-after blockbuster drug status. But the drugs currently driving the bulk of the company’s sales are more mature, prompting some investors to be cautious.
Investors were more bullish on No. 5 Public Storage Co., which saw its market cap grow by one-quarter. The Glendale self-storage company has benefited from a shortage of storage space as the housing bust and recession have forced many Americans to downsize their living space and put more items into storage.
“Public Storage is benefiting from very limited supply growth in the self-storage space, which is helping to support pricing power,” said Smedes Rose, an analyst with Keefe Bruyette & Woods in New York.
Newly renamed Mandalay Digital Group Inc. moved up the most spots on the list, climbing to No. 127 from No. 165 as its market cap jumped to $63 million from $17 million.
Previously known as NeuMedia, the company retooled to offer software for mobile phones that allows mobile phone companies to collect money on applications instead of watching that money go to application developers such as Apple Inc. The company also brought in as its new chairman Hollywood producer Peter Guber, chief executive of Mandalay Entertainment Group, a separate entity from Mandalay Digital.
The new management team immediately set out to recapitalize, more than doubling the number of shares to 81 million. Yet despite all the new shares, the price rose from about 60 cents to 80 cents.
“They’ve done a good job attracting investors,” said Bud Leedom, an analyst with Merriman Capital Inc. in San Francisco.
On the flip side, the company that moved down the most spots was BNK Petroleum Inc., which plunged 49 slots to No. 114 as its market cap fell 85 percent. The Camarillo company has been making a play for shale gas production in Poland, but well tests so far by BNK and other oil companies there have indicated much less shale gas than initially anticipated. That in turn has soured investors on the company.
THE TOP 5 1. WALT DISNEY CO.
Market Cap: $86.7 billion s17 percent
Mouse House benefited from increased attendance and spending at theme parks, rising ad revenue from ESPN sports channels and blockbuster “Avengers” release.
2. OCCIDENTAL PETROLEUM CORP.
Market Cap: $69.6 billion t18 percent
Oil and gas exploration company slammed by falling crude oil prices and glut of natural gas in the U.S.
3. AMGEN INC.
Market Cap: $56.7 billion s4.5 percent
Biotech giant’s two new bone treatment drugs represent best chance in years to reach blockbuster status and replace aging best sellers.
4. DIRECTV INC.
Market Cap: $32.0 billion t18 percent
Satellite television provider has seen U.S. penetration slow with few options to grow domestic subscriber base.
5. PUBLIC STORAGE CO.
Market Cap: $25.8 billion s27 percent
Self-storage giant gains from shortage of storage space as Americans downsize their living quarters and box up more possessions.
