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Saturday, Jun 3, 2023

A Five-Year Look at the Valley 50

What a difference five years makes! We decided to take a look at the Business Journal’s Valley 50 stock index (page 52) to see how it has changed over time and we found that it has certainly gone through changes. Only 35 of the companies on this month’s index have occupied a spot for each of the last five years. The two companies with the highest share prices five years ago are both now owned by companies far, far away. Wellpoint Health Networks merged with Anthem and their headquarters were relocated to Indianapolis while Countrywide Financial Corp. is now Bank of America, headquartered in North Carolina. Number 10 in 2004 was IHOP (International House of Pancakes). It is still on the 2008 list, but is now called DineEquity, Inc. and has a new ticker symbol. The share price, however, is back to where it was five years ago after reaching $63.30 in July 2007, partly due to costs associated with its Applebee’s acquisition. Sales were reported to have increased a whopping 370 percent in the second quarter. Guitar Center, was acquired by a private equity firm in Boston. The Cheesecake Factory, ticker symbol CAKE, was in the eighth spot in 2004; this year it dropped to 15. The company lost three key long-time executives this year including CFO Michael Dixon who left without explanation last month. Two of the businesses on the list are, for all intents and purposes, the same company: PS Business Parks Inc. and Public Storage Inc., both in Glendale, are real estate investment trusts albeit with different focuses, as the names imply. This year Public Storage was one of just two Valley 50 companies with stock values higher than one year ago. Public Storage had its revenues bolstered by income from the sale of 51 percent of its equity in a 2006 acquisition of Shurgard Europe, said Clem Teng, vice president of investor relationships. That added $600 million in cash to their books in March. They sold off a percentage of the business there for a couple of reasons. First, in Europe, Teng said, “You can’t grow through acquisitions, you have to build them. That takes a lot of capital.” There are only about 1,500 storage facilities in all of Western Europe, according to Teng, with 170 of them bearing the Shurgard name. “And because we’re a U.S. REIT, there are complexities with sending capital to Europe and trying to repatriate it,” he continued. “It was better for (Shurgard) Europe to have its own capital structure.” They tried to launch an IPO about a year ago, but that failed due to market conditions. As far as the Los Angeles area goes, Teng said the company will try to continue its growth locally by acquiring small, independent storage operators, and also by repurposing or expanding their existing facilities. Acquisition targets Apparently Valley-based companies are attractive to investors and competitors, with 10 of the 15 dropped from the list simply because they were acquired by out-of-towners. This was the fate of 21st Century Insurance Group. Although it still operates under that name it is actually now owned by American International Group (better known as AIG). Two Camarillo companies, Digital Insight and Electronic Clearing House, were purchased by Intuit which will be combining some of its acquisitions in new space at the LNR Corporate Center in Woodland Hills in September. Biosource International was purchased in 2005 by Carlsbad-based Invitrogen for $12.50 a share. Optical Communication Products was purchased by Oplink Communications in Northern California toward the end of 2007. Of the remaining five, one moved just outside of our coverage area, two were de-listed and two went back to being privately owned. Not one went out of business. Additions Retailer Shoe Pavilion was added in 2006. That company, based in Van Nuys, is now on life support as it tries to work out its own credit crisis by filing for Chapter 11. Thomson S.A. and Trio-Tech International also joined the list this year. Thomson S.A., formerly Thomson Multimedia, headquartered in France, was added since it purchased Technicolor, which remains in Burbank. Trio-Tech International of Van Nuys joined the list after FORTUNE Small Business magazine listed it as one of the 100 fastest-growing companies in the U.S. for the second year in a row. Other newcomers included Calabasas-based National Technical Systems, added in ’07 after a number of mergers and acquisitions pumped up the company’s profile; Hemacare in Van Nuys, which has been struggling lately with its stock down to $0.35 in July; and Semtech Corp. of Camarillo which over the past four years has seen its stock price go up ($17.69), then down ($12.90), then up ($18), and back down to $13.69 per share as of July. Mannkind Corp. joined the Valley 50 in 2005 after an initial public offering that raised $83.6 million. Since the market’s enthusiastic reception, which had the stock trading in the $15 to $20 range during the first half of 2006, the stock lost nearly 60 percent of its value in April when concerns about a new drug were revealed. Since then the stock has hovered around $3 per share. The company is burning through cash as it nears completion of two clinical trials: Cash and cash equivalents were $180.5 million at June 30, versus $368.3 million on December 31, 2007. Encino-based California United Bank joined the list in 2008, shortly after its third anniversary. Since then, President and CEO David Rainer was selected as an Ernst & Young Enterpreneur of the Year regional winner. Worldwide Restaurant Concepts both joined and left the list in the reporting period, with the company showing up in only one July, that of 2004. The business, which operated 302 Sizzler and 111 KFC restaurants, among others, was bought by an Australian conglomerate in 2005. Boosterism versus reality Valley economic boosters often point to the region as somewhat of a safe haven, an insulated pocket of economic health. This is not necessarily reflected in the Valley Top 50. Looking at the combined value of the list companies’ share prices, as compared with the S & P; 500 over the past five years (see chart on cover) it actually seems like the two indexes generally follow a similar trendline. Mark Schniepp, principal of the California Economic Forecast, said there are bright spots in the economy. Generally, he said, the Valley does not have “some kind of unique characteristic that is making it resilient.” While real estate has obviously been “in a deep, dark hole,” said Shniepp, producing a drag on the overall economy, across the country the economy is still growing, albeit very modestly. Coastal states are getting a huge boost from tourism which Schniepp termed as “very, very vibrant this year,” with hotel occupancy and room rates “flirting with record levels.” The entertainment industry is also a bright spot, he said, rebounding nicely from the strike woes of earlier in the year. “And recreation and leisure services right now are also very vibrant,” said Shniepp, not just because of tourists but because the cost of travel is causing locals to stay in the region, “making more use of the tourism infrastructure that exists here.” He said also that healthcare is at an all-time high in Los Angeles County, and the professional business services sector “is doing very, very well.

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