It’s been a rocky ride over the last 12 months for many of L.A.’s publicly traded companies.
All told, 63 of the 100 firms on the Business Journal’s list of public companies this year posted net drops in their market capitalization – or total value of their stock – for the year ending June 30. And the damage was pervasive, touching just about every industry, including real estate, manufacturing, biotech, health care, entertainment and retail. (The List of Largest Public Companies begins on page 16.)
The hardest-hit sector on this year’s Business Journal list was L.A.’s financial industry, where regional banks took a particularly severe market cap walloping after the collapse of Silicon Valley Bank, Signature Bank and First Republic Bank this spring.
“Because two of the bank failures were in California, California banks tended to get hit a little harder than banks around the rest of the country,” said Tony Rossi, head of the banking practice at Financial Profiles Inc. in Brentwood.
Beverly Hills-based PacWest Bancorp suffered the worst percentage-based year-over-year financial sector blow as its market cap nosedived 70% to $958 million, wiping out more than $2.2 billion in valuation. (PacWest last week agreed to be bought by Banc of California.) Another substantial decline came from Pasadena-based East West Bancorp Inc., whose market cap dropped 19% year over year to $7.4 billion, erasing $1.7 billion in valuation. Meanwhile, Hope Bancorp Inc. saw its market cap plunge 38% to $1.02 billion, sending $625 million in valuation up in smoke.
Big worry
“There has been a real scare in terms of deposits falling out of smaller banks,” said Dean Kim, head of research product at William O’Neil Co. in Playa Vista. “And then came the big worry about commercial real estate because during Covid everybody was working from home and a lot of these spaces were vacant. … For PacWest, they have a big percentage of their loans related to commercial real estate, so that’s also a part of why they had a terrible 2022.”
Other financial-sector casualties were Cathay General Bancorp, which saw its market valuation sink 18% to $2.4 billion as more than $536 million of its valuation disappeared, while L.A.-based Royal Business Bank had more than 42% of its valuation disappear over the past 12 months as its market-cap figure plunged to $230 million.
“If you’re a medium-sized bank or a small-sized bank, it’s definitely been choppy seas,” said Lloyd Greif, the president and chief executive of downtown-based investment banking firm Greif & Co. “There were some banks that clearly were not well run and were taking risky bets – like Silicon Valley Bank did with their whole long-term liability and short-term asset switch. … But I think some of this has been throwing the baby out with the bathwater.”
Financial Profiles’ Rossi noted that while many of these L.A.-headquartered regional banks find themselves caught up at the moment in an unfavorable-by-association view held by many investors, that could be an opportunity for some.
“These banks are trading at very, very low valuations now,” Rossi said. “Ultimately, they will, however, get back to the valuations they typically trade at, and anybody who’s bought them at these valuations will be well rewarded for their patience. But it’s definitely going to take some courage for people to do that right now.”
Biotech struggles
This spring’s regional banking crisis also played a role in the substantial losses sustained by a number of L.A.’s small- and mid-cap biotech companies, including Temple City’s Fulgent Genetics, down $537 million, Culver City-based ImmunityBio Inc., down $320 million, and Monrovia’s Xencor Inc., down $191 million.
“These are companies that don’t generate revenues and really need access to capital markets every six months or every 12 months as they run Phase 1, Phase 2, and Phase 3 trials,” said Sahak Manuelian, the managing director and head of equity trading at downtown-based Wedbush Securities.
“As the capital markets have been drying up since 2022, there’s been less and less investor funds for these types of more speculative plays,” Manuelian continued. “Then on top of it, the whole regional banking crisis in March was just a double whammy for the biotech stocks. As many of these small biotech stocks really looked to community banks and regional banks for funding, a lot of that money dried up, so that certainly hurt.”
Big names, big losses
Some of the largest-cap stocks on this year’s list also sustained notable losses, including Burbank-based entertainment behemoth and Los Angeles County’s biggest public company, Walt Disney Co., which saw its market cap slip 5.7% year over year to $162 billion, erasing nearly $9.8 billion in valuation.
“I think there are a lot of factors at play, including the uncertainty about how long Bob Iger is going to stay as CEO and what the long-term impacts are from the writer’s strike and now from the actor’s strike,” Greif said. “People haven’t come back to the theater yet, and there’s a big question as to what’s going to happen there. Streaming is extremely competitive, and Disney hasn’t figured out how to make a buck on streaming. … And then, of course, Disney has also increased the price of admission to its theme parks. So its parks are beginning to see the impact of those prices becoming pretty high for consumers, who are watching their nickels right now because it’s a tough economy.”
Meanwhile, Thousand Oaks-based pharmaceutical giant Amgen Inc. lost more than $10.8 billion in valuation as its market cap dropped 8.3% year over year to $119 billion.
“Much of health care overall has really been struggling,” said William O’Neil’s Kim. “In the case of Amgen, they just haven’t been able to come up with positive news related to their products. And it’s showing in their earnings, which declined 6% in the previous quarter and 7% the quarter before that.”
Other large-cap L.A. public companies that saw significant valuation drops were Glendale-based Public Storage, which lost $3.7 billion, along with Santa Monica’s Snap Inc., down $2.4 billion, and El Segundo-based Mattel Inc., down $823 million.
“Snap got hit due to a number of reasons, not the least of which is the digital ad market slowed, and Apple’s user-privacy changes made tracking the effectiveness of those digital ads more difficult,” Greif said.
Kim said he expects to see better numbers ahead, however, for L.A.’s real estate investment trusts, or REITs, like Public Storage.
“2024 might be a great year for stocks, because if you believe the Fed is going to be done raising rates soon, then the money’s going to flow back into equities,” he explained. “And that should help REITs – companies like Public Storage – because it’s going to make their dividend yield more attractive to investors if the bond yields are lower.”
