America's Most Valuable Companies

It's the season of renewal. After almost five years of recession, anemic revivals, and a painful period of introspection that touched almost every aspect of Corporate America from the shop floor to the boardroom, the U.S. economy is finally bounding solidly back. What started out as a hopeful glimmer at the beginning of 1993 ended up in the biggest quarterly GNP growth spurt in a decade at the close of the year--a full 7.5%. And though that rate may not be repeated this year, the U.S. recovery is no longer in dispute.

Evidence of the reawakening of U.S. corporations is everywhere. The combined profits of the BUSINESS WEEK 1000 rose 23% last year, to $206 billion, while sales climbed a modest 5%, to $4.2 trillion. Scattered through the roster of America's most valuable companies that begins on page 80 are many impressive tales of revival. Companies as diverse as Mobil, Citicorp, and Bristol-Myers Squibb saw their profits climb. Nowhere was the renewal more visible than in the once-beleaguered auto industry. Thanks to cost-cutting and legions of ready consumers, Motown scored huge gains.

The turnaround was most impressive at General Motors Corp., which shook free of three straight years of losses. Last year, GM posted net earnings of $2.5 billion, compared to a loss of $2.6 billion a year earlier, as its sales rose by 5%, to $138.2 billion. And early signs point to another good year for auto makers. Indeed, January car and truck sales were running 15% ahead of last year's volume.

ROARING AHEAD. More telling is the way the market interpreted the results. After all, the BW 1000, ranked according to market value, is not just a measure of how a company has done. It offers insights into its future prospects as well. GM, for example, roared ahead in the rankings to No.7 from No.14, as its market value soared a hefty 59%, to almost $42 billion. Ford Motor Co. meanwhile climbed the list to No.14 as Chrysler Corp. made it to No.35. Last year, they were ranked 23 and 55, respectively.

Other big winners included Motorola Inc., which advanced to the No.17 spot from No.45, as its market value climbed 80%, to $28.4 billion. Strong semiconductor sales certainly helped instill confidence. But the market was also enthusiastic about the PowerPC line of computer chips. Introduced last year, the PowerPC was jointly developed by Motorola, Apple Computer, and IBM to challenge Intel's domination of the chip business.

The company formerly known as Primerica also sprinted ahead to No.67 from No.129. Its market value climbed 98%, to $12.1 billion, after it acquired Travelers, the insurance giant, and Shearson, the former brokerage unit of American Express. Now known as Travelers Inc., the company boasts a wide range of financial services. And most analysts are optimistic about its prospects.

The rising economic tide didn't lift all boats. Consider Philip Morris Cos.: In dollar terms, the tobacco giant posted the biggest decline in market value, falling $10.8 billion, or 18%, to $49.1 billion. Blame it on Marlboro Friday, when the company cut the retail price of its premiere brand in the face of sagging domestic sales. Last year, the company's profits fell 28%, to $3.6 billion, reflecting lower cigarette prices and higher marketing costs for Marlboro.

More astonishing were the setbacks suffered by former highfliers such as American Telephone & Telegraph Co. and Home Depot Inc. Blame their fading luster on the rise of more agile challengers. With AT&T feeling the competitive heat of long-distance rivals, its market value slipped 5%, to $71 billion. By contrast, MCI Communications Corp.'s market value gained 41%, to $14.8 billion, thanks to the success of its long-distance discount calling program. Likewise, Sprint Corp.'s market value advanced to $12.7 billion, up 33%. Home Depot, too, was outshone by smaller competitors, such as Lowes Corp. While Home Depot's market value dropped 12%, to nearly $18.7 billion, Lowes rang up a 135% increase in market value, to $4.9 billion.

The biggest surprise: Wal-Mart Stores Inc. The retail giant from Bentonville, Ark., has traditionally been a steady market-value gainer since the BW 1000 list first appeared in 1986. But this time around, its market value shrunk by 13%, to $65.2 billion, even though its profits advanced 17%. The culprit? Analysts blame a slowdown in sales growth at Wal-Mart stores open a year or more, as well as tougher competition for its warehouse chain, Sam's Wholesale Club.

Among industries, health-care services scored the biggest advance. Even though the debate over health-care reform has grown fierce, investors are betting that hospitals and managed-care facilities, including health maintenance organizations, are bound to benefit. Caremark International Inc., which specializes in a range of home health-care services, such as home infusion, staged one of the biggest advances in the health-care sector. The Chicago-based company's market value rose by 55%, to $1.6 billion.

Many of the companies in the health-care category are appearing for the first time, reflecting the industry's new dynamics. For example, Columbia/HCA Healthcare, which operates 190 hospitals nationwide, is ranked No.51, with a market value of $14.5 billion. The company, based in Louisville, Ky., was created in February with the merger of the two largest U.S. hospital chains, Columbia Healthcare Corp. and Hospital Corporation of America.

The banking industry posted healthy returns, too, helped by lower interest rates. An uptick in consumer borrowing, especially by way of home mortgages and credit cards, also propelled bank earnings. The market value of Citicorp, the nation's largest banking company, which had been hobbled by bad real estate loans, rose 65%, to $16 billion. San Francisco-based Wells Fargo & Co. climbed to No.116 in the ranking from No.158 as its market value increased 39%, to $7.7 billion.

NO SNAP. Some of the biggest leaps in market rank occurred well down the list. Among the biggest gainers in this year's rankings was Navistar International Corp. The truck manufacturer went from No.887 to No.506, as its market value increased 145%, to $1.8 billion. Successful cost-cutting and improved sales powered the surge.

Then there's the other side of the market-value ledger. The biggest loser this year was U.S. Surgical Corp., which sank to No.809 from No. 279 as its market capitalization plummeted 71%, to $982 million. How come? Sales of the company, which supplies high-tech surgical gear, were pounded as increasingly cost-conscious hospitals tightened up their inventory controls.

As a group, electric utilities were the biggest losers. Fear of higher interest rates soured investors on many of these companies, which traditionally borrow heavily in the bond market. Scecorp's market value fell 26%, to $8.1 billion. Pacific Gas & Electric Co. was down 10%, to $13.5 billion. Eight other utilities, including Wisconsin Public Service, Central Maine Power, and Ogden Projects, dropped off this year's list.

There was also no snap, little crackle, and less pop in the market values of the leading cereal makers. As cereal prices increased, these marketers felt a consumer backlash, and sales grew only modestly. Kellogg Co.'s market value dropped 24%, to $11.5 billion. General Mills Inc. lost 22%, to $8.9 billion. Other food giants suffered, too. H.J. Heinz Co. plunged 27%, to $8.2 billion. Heinz was adversely affected by the strengthening U.S. dollar, which reduced its foreign earnings.

As the economy chugs through the year ahead, there will undoubtedly be other disappointments as well as plenty of triumphs. For the moment, however, the market has spoken.

GLOSSARY

MARKET VALUE: Share price on Feb. 28, 1994, multiplied by latest available common shares outstanding

PROFITS: Net income from continuing operations before extraordinary items

MARGINS: Profits as a percent of sales

RETURN ON INVESTED CAPITAL: Profits plus minority interest and interest expense (adjusted by tax rate) as a percent of debt and equity funds

RETURN ON COMMON EQUITY: Net income available for common shareholders divided by common equity

ASSETS: Total assets as reported at end of company's

latest available 1993 quarter

RECENT SHARE PRICE: Price for a single share of a company's most

widely traded issue of common stock as of the close of trading

Feb. 28, 1994

HIGH/LOW PRICE: Trading range for company's common stock, Feb-

ruary, 1993 to February, 1994

BOOK VALUE PER SHARE: Sum of common stock, capital surplus, and retained earnings divided by most recently available common shares outstanding

P-E RATIO: Price-earnings ratio based on 1993 earnings and Feb. 28 stock price

YIELD: Annual dividend rate as a percent of Feb. 28 stock price

PAYOUT: Latest annualized dividend rate as a percent

of the company's most recent

annual earnings per share

TOTAL RETURN: Annual dividend per share plus latest available month-end price, as a percent of year-ago month-end price per share

INSTITUTIONAL HOLDINGS: Percent of outstanding shares of stock held by banks, colleges, pension funds, insurance companies, and investment companies as calculated by Vickers Stock Research Corp.

SHARES OUTSTANDING: Millions of common shares outstanding as of the company's latest available financial report

TURNOVER: Percent of outstanding common shares changing hands in the latest year

EARNINGS PER SHARE: Primary earnings per share, excluding extraordinary profit or loss, divided by number of common and common equivalent shares

EARNINGS PER SHARE ESTIMATES:

Analysts' consensus estimates for 1994 compiled as of Feb. 24 by I/B/E/S Inc., New York

(I/B/E/S is a registered trademark of I/B/E/S Inc.)

VARIATION: Percentage by which two-thirds of the 1994 earnings estimates are above or below the average estimate as calculated by I/B/E/S

FY: Number of the month in which company's fiscal year ends

DATA: Unless otherwise indicated, all data in the following Top 1000 tables have been provided by Standard & Poor's Compustat, a division of McGraw-Hill Inc.

FOOTNOTES

(a) Latest available data. (b) Actual and estimated figures are fully diluted. (c) Estimated earnings data. (d) Earnings data from I/B/E/S. (x) Sales include excise taxes. (y) Sales include other income. (z) Sales include excise taxes and other income. NA=not available. NM=not meaningful. NR=not ranked in Top 1000 in 1993. NEG=negative book value per share. DEF=earnings deficit in dividend payout. Because BUSINESS WEEK is owned by McGraw-Hill, the Top 1000 does not include a forecast of the company's earnings. Data do not include full 12 months' results. Note: Data compiled by Standard & Poor's Compustat from sources such as statistical services, registration statements, and company reports that SPC believes to be reliable but that are not guaranteed by SPC or BUSINESS WEEK as to correctness or completeness. This material is not an offer to buy or sell any security. Additional data: I/B/E/S, Vickers Stock Research Corp.

                           COMPOSITES
      MARKET VALUE (BILLIONS)       $4,149
      CHANGE FROM A YEAR AGO            8%
      RETURN ON COMMON EQUITY        12.8%
      YEAR AGO                       10.4%
      RETURN ON INVESTED CAPITAL      9.3%
      YEAR AGO                        9.1%
      SALES (BILLIONS)              $4,173
      CHANGE FROM 1992                 +5%
      PROFITS (BILLIONS)              $206
      CHANGE FROM 1992                +23%
      ASSETS (BILLIONS)             $9,400
      CHANGE FROM 1992                +10%
      1993 PROFIT MARGINS             4.9%
      1992 PROFIT MARGINS             4.2%
      
      
                             AVERAGES
      SHARES OUTSTANDING         107 MILLION
      YEAR AGO                    96 MILLION
      TURNOVER                         95.6%
      YEAR AGO                         85.2%
      YIELD                            2.13%
      YEAR AGO                         2.13%
      PRICE                              $54
      YEAR AGO                           $51
      PRICE-TO-BOOK                     317%
      YEAR AGO                          100%
      1993 EARNINGS PER SHARE          $2.19
      1992 EARNINGS PER SHARE          $1.82
      1994 EARNINGS ESTIMATE           $2.87
      VARIATION                        11.4%
      HELD BY INSTITUTIONS               56%
      YEAR AGO                           53%
      PAYOUT                             40%
      YEAR AGO                           22%
      PRICE-EARNINGS RATIO                22
      YEAR AGO                            22
      DATA: STANDARD & POOR'S COMPUSTAT, I/B/E/S INC.,
      VICKERS STOCK RESEARCH CORP.
      
      
   LOOKING AT THE RECORD
      Like the economy, corporate fortunes change. The composition of the BUSINESS WEEK 1000 shifts constantly in response to market forces. Here's a quick way to gauge how the shifting winds of growth, renewal, and decline have reshaped the list over the past 12 months.
      
         WHO CAME ON THE LIST...
         Industries with the most
      newcomers on the list this year
      INDUSTRY                           NO.
      HEALTH-CARE SERVICES                 6
      TELECOMMUNICATIONS SERVICES          3
      COMPUTER SOFTWARE & SERVICES         3
      SEMICONDUCTORS                       3
      SPECIAL MACHINERY                    3
      BUILDING MATERIALS                   3
      MISCELLANEOUS SERVICES               3
      INSURANCE                            2
      BROADCASTING                         2
      ENTERTAINMENT                        2
      PAPER                                2
      AUTO PARTS & EQUIPMENT               2
      REAL ESTATE                          2
      
         ...AND WHO FELL OFF
         Industries with the most companies
         disappearing from the list this year
      INDUSTRY                         NO.
      ELECTRIC UTILITIES                -8
      PERSONAL CARE                     -4
      PUBLISHING                        -4
      COAL, OIL & GAS                   -3
      DRUGS & RESEARCH                  -3
      FINANCIAL SERVICES                -3
      CONGLOMERATES                     -3
      DISCOUNT & FASHION RETAILING      -2
      COMPUTERS & PERIPHERALS           -2
      GAS & PIPELINE UTILITIES          -2
      BANKS-WEST & SOUTHWEST            -2
      FOOD RETAILING                    -2
      STEEL                             -2
      TEXTILES                          -2
      CHEMICALS                         -1
      
         WINNERS...
         The market value of these industry groups grew the most from last year
                          MARKET VALUE DIFFERENCE
      INDUSTRY              (MILLIONS OF DOLLARS)
      HEALTH-CARE SERVICES                $32,581
      CARS & TRUCKS                        29,203
      CONGLOMERATES                        27,386
      FINANCIAL SERVICES                   24,826
      COMPUTER SOFTWARE  &  SERVICES       23,809
      TELECOMMUNICATIONS SERVICES          22,285
      ELECTRONICS                          20,575
      CHEMICALS                            18,482
      SPECIAL MACHINERY                    17,655
      SEMICONDUCTORS                       16,600
      AEROSPACE & DEFENSE                  11,358
      TELEPHONE COMPANIES                  10,762
      ENTERTAINMENT                        10,620
      COMPUTERS & PERIPHERALS              10,080
      RAILROADS                             9,658
      EATING PLACES                         9,125
      BROADCASTING                          9,037
      INSURANCE                             8,874
      MISCELLANEOUS SERVICES                6,882
      COAL, OIL & GAS                       6,777
      NONFERROUS METALS                     6,298
      AUTO PARTS & EQUIPMENT                5,602
      BUILDING MATERIALS                    5,521
      BANKS-MIDWEST                         5,441
      HOTEL & MOTEL                         5,262
      
         ...AND LOSERS
         The market value of these industry groups dropped the most
                                   MARKET VALUE DIFFERENCE
      INDUSTRY                       (MILLIONS OF DOLLARS)
      ELECTRIC UTILITIES                          -$28,588
      FOOD PROCESSING                              -17,119
      TOBACCO                                      -12,144
      DISCOUNT & FASHION RETAILING                  -8,084
      POLLUTION CONTROL                             -6,975
      DRUGS & RESEARCH                              -4,491
      APPAREL                                       -2,869
      MEDICAL PRODUCTS                              -2,635
      TEXTILES                                      -2,446
      DRUG DISTRIBUTION                             -1,578
      BANKS-WEST & SOUTHWEST                        -1,106
      DATA: STANDARD & POOR'S COMPUSTAT