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Tuesday, Dec 6, 2022
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SPECIAL REPORT: Bullish But Uncertain

In some respects, 2016 was a repeat of 2015 as a year for public companies in the San Fernando Valley. Once again, there were a lot of mergers and acquisitions, with seven companies on the Valley 50 bought by other publicly traded companies or entering private hands. Chris Mone, regional president in Los Angeles for BNY Mellon Wealth Management, the institution that compiles data for the Valley 50, said the market showed volatility again this year, but with one characteristic difference. “The sentiment was different this year because of the election race that had a lot of unpredictably to it,” Mone said. Yes, the election. The surprise victory of billionaire businessman Donald Trump as president may have caused angst for some groups but the markets responded with a post-election rally. Shares of Amgen Inc., for instance, rose 7.5 percent in the two days after the election. As of Dec. 7, the Thousand Oaks biotech had lost 13 percent for the year. Also, shares of Aerojet Rocketdyne Holdings Inc., which has a large rocket engine development and manufacturing facility in Northridge, went up nearly $2 and eventually hit a 52-week high. Defense and aerospace contractor Northrop Grumman Corp., with operations in Woodland Hills and Palmdale, increased by $12 the day after the election. And Sylmar construction firm Tutor Perini Corp. rose by more than $2, and reached a new 52-week high of $29.20 a few days later. Mone said that eventually there will be a pullback in the market because higher valuations and rising yields are still present. He also does not foresee any changes in policy as a negative drag on the economy. “Hiring and corporate spending will be decided by businessmen, not politicians,” Mone said. “The businessmen are going to get more favorable policies.” Trump’s election was raised in a Nov. 9 research note on Amgen by Karen Andersen, a senior analyst for Morningstar Inc. in Chicago. Having Trump in the White House and a Republican majority in the House and Senate leads to uncertainty for health care stocks, Andersen wrote. The only clear objective that’s been stated is a possible repeal of the Affordable Care Act, or Obamacare, but that may likely turn out to be a modification to the law rather than complete elimination as several groups have benefited from the legislation. “The passage of ACA was largely a compromise with industry stakeholders, mandating increased insurance coverage in return for lower costs,” the note said. “Reversing this mandate is largely a net neutral to the health care sector, with the drug, biotech and insurance industries slightly benefiting, hospitals and drug supply chain firms negatively impacted, and the remaining industries less influenced.” Mid-caps rising Forty of the Valley’s top 50 publicly traded companies fall into four industry sectors – finance, health care, technology and consumer discretionary, which includes entertainment. The year-to-date return of three of those sectors has been positive on the Standard & Poor index with the lone negative exception being health care, which has underperformed across the board, Mone said. While the initial reason to think that health care is not doing well is reimbursement pressures, that does not apply to the Valley because of its diversified mix of companies, Mone said, which includes providers, medical devices and pharmaceuticals. “With some of the products they are delivering, yes, there is some impact from the HMOs and reimbursements, but a lot of it is, I think, mainly due to pricing scrutiny and regulations,” he added. In addition to Amgen, Valley health care companies include Apollo Medical Holdings Inc., MannKind Corp., ImmunoCellular Therapeutics Ltd., Simulations Plus Inc., and Second Sight Medical Products Inc. Additionally, St. Jude Medical Inc., in St. Paul, Minn., has a large cardio device manufacturing plant in Sylmar, and Medtronic has its diabetes division in Northridge. Companies the size of Amgen, however, are the exception when it comes to the Valley region. Most publicly traded companies are small- to mid-cap size, Mone said. The good news is that BNY Mellon is favoring equities over bonds in the coming year as domestic stocks should benefit from the policies from a Trump administration, he added. Because of that, the firm’s recommendation to investors is increasing exposure in small- and mid-cap companies, including those found in the Valley, Mone said. “They will benefit from an expanding economy under the policies we expect under the incoming administration,” he explained. M&A market Acquisition activity for Valley companies this year managed to outpace what occurred in 2015 when deals took place valued in the billions. Vitesse Semiconductor Corp. in Camarillo, Health Net Inc. in Woodland Hills and Ryland Group Inc. in Westlake Village were among the companies bought out by others. The buyout of Studio City-based cable network Crown Media Holdings in May by Hallmark Cards Inc. kicked off this year’s consolidation binge. Hallmark of Kansas City, Mo., already owned 90 percent of Crown Media and paid about $175 million for the remainder. Throughout the summer came other deals: B. Riley Financial Inc. in Woodland Hills bought internet service provider United Online Inc.; private investment firm Platinum Equity in Beverly Hills took testing and computer equipment supplier Electro Rent Inc.; dairy farmer cooperative Land O’Lakes Inc. purchased forage crop developer Ceres Inc.; and newspaper publisher Gannett Co. Inc. acquired online marketer ReachLocal Inc. Earlier this month, Tessera Holding Corp. closed on its acquisition of audio technology developer DTS Inc. in Calabasas. Two of the biggest deals of the year involved entertainment companies. Glendale feature film and television studio DreamWorks Animation SKG Inc. was bought for $3.8 billion by Comcast Corp. and was folded into the Universal Filmed Entertainment Group. That deal closed in August. In October, Time Warner Inc., the parent of Warner Bros. Entertainment, in Burbank, became an acquisition target of telecommunications giant AT&T Inc. The transaction, however, still faces scrutiny from the Justice Department and the Federal Communications Commission. As a candidate, Trump had made statements that if elected his administration would not approve the deal. But according to media reports as president-elect, he has softened his stance and his administration is now likely to back the proposed merger. But it hasn’t been all subtraction when it comes to the Valley area public companies. Two companies, Monster Digital Inc., in Simi Valley, and BlackLine Inc., in Woodland Hills, had initial public offerings and joined the Nasdaq market. Monster Digital distributes portable action sports cameras and accessories. The company raised $9 million in its initial public offering in mid-July. The share price, however, has lost nearly 60 percent of its value since, decreasing from $3.49 on the day the IPO to close at $1.60 on Dec. 7. Of the two new public companies, BlackLine is the most significant with its stock debuting at $17 on Oct. 28. Since then, the price has gone up and at times has increased by more than $10. It closed Dec. 7 at $26.22. Steven Ashley, a senior research analyst with Robert W. Baird & Co. in Milwaukee, pointed out in a research note Dec. 1, that the worldwide market for BlackLine’s software is as much as $17 billion and is largely unpenetrated. “Currently, many companies are using manual processes and tools (e.g., spreadsheets, emails, paper binders) or ‘homegrown’ solutions to meet their financial close needs, providing BlackLine a number of greenfield opportunities,” Ashley said in the note.

Mark Madler
Mark Madler
Mark R. Madler covers aviation & aerospace, manufacturing, technology, automotive & transportation, media & entertainment and the Antelope Valley. He joined the company in February 2006. Madler previously worked as a reporter for the Burbank Leader. Before that, he was a reporter for the City News Bureau of Chicago and several daily newspapers in the suburban Chicago area. He has a bachelor’s of science degree in journalism from the University of Illinois, Urbana-Champaign.
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