Star 40

Stock surges help handicap rankings for next year

Updated: 2013-05-15T03:26:37Z

By MARK DAVIS

The Kansas City Star

Seven years ago, a big merger drove a local company to the top of our annual rankings of publicly traded companies.

Since then, the deal that created Sprint Nextel Corp. has been ranked among the worst corporate consummations ever. The Overland Park wireless phone company is in the late stages of shutting down the Nextel network it gained.

And Sprint, after years of recovery work, is on the precipice of taking another big leap.

Will it merge with satellite television operator Dish Network Corp. or exchange 70 percent ownership for a pile of cash from Tokyo-based SoftBank Corp.?

The battle for control of Sprint has helped push its stock up 26.1 percent this year through Friday’s close.

And, as we’ve mentioned in years past, a strong stock can be a harbinger of better rankings in what we now call Star 40. It had been Star 50 but we no longer have that many publicly traded companies to rank.

Higher stock prices lift a company’s market value, which is one component of our ranking. Market value is a company’s stock price times the number of shares it has in the hands of shareholders.

Rising stock prices also often reflect improving profits, or growing revenues, the two other factors that decide where companies land among the Star 40.

One year ago, we noted that H&R Block’s shares were doing poorly, and the company’s ranking slipped to No. 15 this year (in a tie with Sprint) from No. 9 a year before.

This year H&R Block shares are soaring, up 54.1 percent and easily the best showing among the larger Star 40 contenders.

Another sign the company may be doing better is that it survived what was a chaotic tax season shortened by government-induced delays.

Shares of No. 1 Cerner Corp., a repeat winner from last year, have climbed 24.7 percent this year. That’s a leg up on what would be an unprecedented “three-peat” first finish should it come to that next year.

No. 4 Kansas City Southern doesn’t have far to climb to a top ranking, and its shares’ nearly 32 percent advance this year help the cause.

Cerner and Kansas City Southern also are among a few Star 40 contenders we’ve identified as being in a sweet spot in the economy.

But a lot of local stocks are doing well this spring.

Nearly two thirds of our Star 40 contenders’ shares are beating the Standard & Poor’s 500 index.

Leading the pack is tiny Digital Ally Inc., the Overland Park seller of surveillance equipment to law enforcement and others.

Digital Ally missed this year’s cut, ranking 44 among 46 companies we compared.

Small is a big disadvantage in Star 40. Half our calculations are affected by the size of a company’s revenues, profits and market value.

A smaller company’s rankings depend greatly on increasing those totals, which accounts for the other half of our comparisons.

Digital’s management spent the first half of 2012 fixing the problems that had made 2011 “clearly a bad year,” as chief executive Stan Ross described it in a conference call with analysts in late March.

New products, a push for more non-government customers, and a nearly complete marketing overhaul, including replacing sales reps with sales employees, have begun to show results.

Revenues and profits were both greatly improved in the first quarter, one reason the stock is doing well this spring.

Overland Park-based YRC Worldwide Inc. ranked 36th among the Star 40 but second for its stock performance this year through Friday. Most of its 62.2 percent stock gain came on Friday when the company’s first-quarter operating profit lifted shares by 41 percent.

The trucking giant is still losing money thanks to its big interest expense on debt, but the earnings report showed it had come a long way from two reorganizations that essentially allowed it to avoid bankruptcy.

“The whole thing here is continuous improvement,” said David Ross, an analyst at Stifel Nicolaus & Co. Inc.

To reach Mark Davis, call 816-234-4372 or send email to mdavis@kcstar.com.

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