(Photo: Mark Lennihan, AP)
Each January, 24/7 Wall St. forecasts the publicly traded U.S. companies that will have the highest profits in the year ahead.
This year, Apple (AAPL) almost certainly will keep first place, well ahead of No. 2 Exxon (XOM), as the most profitable corporation in America. It already passed the oil giant in market capitalization. However, while the market appears to anticipate continued rapid growth from Apple, its prospects have dimmed somewhat. After reaching all-time highs last year, Apple’s stock advance has stopped and shares have sold off recently.
The list of most profitable companies is still dominated by oil companies, banks and big tech. A look back at profits over the past five years shows that this trend has continued. Some of these companies have not grown much on the top line of revenue for several years. But they continue to be earnings machines because of their long-time sales success, which will help them produce higher profits in the foreseeable future. Microsoft (MFST) is the best example of this. The software company is no longer considered a leader in the tech world, a position taken by public corporations like Google (GOOG) . Yet, Microsoft’s Windows and business franchises still have huge profit margins. Microsoft’s net income is greater than that of almost all other tech firms.
24/7 Wall St. used Capital IQ data to identify companies with the largest profits, defined as net income, over the past 12 months. This included revenue and earnings forecasts and pricing data. We reviewed earnings forecasts for the final quarter of 2012 and for the full year of 2013 to gauge growth prospects. In addition, 24/7 Wall St. looked at the top 100 companies in the Fortune 500 based on revenue and again reviewed earnings and earnings forecasts for these based on Capital IQ data. Here are what 24/7 Wall St. predicts will be the 10 most profitable companies of 2013:
1. Apple, market cap: $491.6 billion
• Forecast: Revenue of $191 billion, up 23%, earnings of $46 billion, up 10%
• Stock price: $500, trading between $418.66 – $705.07 per share
More than a year after the death of co-founder and CEO Steve Jobs, Apple’s efforts to maintain preeminence in the smartphone and tablet PC markets are under constant scrutiny. Apple’s pace of change has been remarkable. When it launched the iPhone, the company was a PC and portable music player company. Just over five years late, the iPhone accounts for almost half of Apple’s revenue and two-thirds of its profits. Competition from a broad array of products from other companies, led by the Samsung line of smartphones and Amazon.com’s Kindle tablet, has eroded Apple’s lead. Apps built for the Google Android mobile operating system threatens Apple’s strength in the app business, in which it has had a mammoth lead. There is a great deal of speculation about what Apple will do to remain ahead of its competition in all markets, including talk of launching an Apple TV and a cheaper version of the iPhone. Nervousness about Apple’s prospects have pushed down its shares about 15% the past six months.
2. Exxon Mobil, market cap: $406.2 billion
• Forecast: Revenue of $473 billion, down 1%, earnings of $37 billion, up 2%
• Stock price: $90.80, trading between $77.13 — $93.67 per share
Exxon Mobil is the world’s fourth-largest oil company, the largest company in the U.S. based on revenue, and the second-largest public corporation in the world based on market cap. Like most large energy companies, Exxon has made a large bet on the oil sands business, a relatively new way to produce significant amounts of crude. It also continues to increase its capacity to bring crude from deep-sea locations, and it is investing $14 billion in the Hebron fields off the coast of Newfoundland. As have most of the world’s largest energy companies, Exxon has embraced the clean energy and fuel-efficiency movements, and it says it plans to spend a staggering $185 billion in energy projects the next five years.
3. (tie) Chevron (CVX), market cap: $216.2 billion
• Forecast: Revenue of $260 billion, up 8%, earnings of $24 billion, unchanged
• Stock price: $110.47, trading between $95.73 — $118.53 per share
Chevron is the third-largest company in the U.S., based on revenue, according toFortune, behind Wal-Mart and Exxon. Like most other large U.S. oil and diversified energy firms, much of Chevron’s revenue comes from overseas. In the most recent quarter, Chevron’s total sales were $55.7 billion, of which $32.4 billion was pegged as "international." Chevron recently forecast its financial results for the final quarter of 2012 would be particularly strong. Chevron has significant operations in the natural gas sector, operates gas stations under the Chevron, Texaco and Caltex brands, and has large shipping and pipeline operations. Chevron’s stock has outperformed those of most of its global peers over the past five years and has risen 20% over that period.
3. (tie) Microsoft, market cap: $222.7 billion
• Forecast: Revenue of $80 billion, up 9%, earnings of $24 billion, up 7%
• Stock price: $27.25, trading between $22.26 — $32.95 per share
Microsoft, once the most powerful and largest software company in the world, has fallen on hard times. Its flagship product — Windows — was recently updated. The new operating system, Windows 8, has not done well, partly because global PC sales have slowed considerably. Unfortunately for Microsoft, PC sales are not expected to improve this year, as consumers move to tablets and smartphones. Microsoft has several other challenges. Its Online Services Division, made up of its Bing search engine and MSN portal, has struggled with losses. Google remains the dominant search engine by far, which has hurt Bing’s growth chances. Microsoft has also had trouble gaining adoption of its mobile Windows product, which relies in large part on its partnership with handset giant Nokia (NOK). Microsoft’s struggles have hurt it on Wall Street — its stock is down more than 20% the past five years.
5. JP Morgan Chase (JPM), market cap: $175.4 billion
• Forecast: Revenue of $100 billion, up 2%, earnings of $20 billion, up 6%
• Stock price: $46.46, trading between $30.83 — $46.49 per share
Until recently, JP Morgan Chase CEO Jamie Dimon was considered the preeminent chief executive in his industry. His name was often mentioned as a possible candidate for Treasury Secretary when Tim Geithner retired. As a matter of fact, Warren Buffett said he favored Dimon for the job. But JP Morgan has had its share of trouble recently, and Obama’s chief of staff, Jack Lew, was nominated to be the next Treasury secretary. The heart of JP Morgan’s trouble was a large trade that cost the bank more than $6 billion. It was made by London investment employee Bruno Iksil, who has been called the "London Whale" because of the magnitude of the hit to JP Morgan’s financials. Dimon readily admitted that poor management was the cause of the problem, which cost the bank’s chief investment officer her job and caused Dimon to replace the head of London trading operations. As a result, Dimon lost most of his bonus for last year.
6. (tie) Wells Fargo (WFC), market cap: $183.4 billion
• Forecast: Revenue of $85 billion, down 1%, earnings of $19 billion, up 9%
• Stock price: $34.93, trading between $28.77 – $36.60 per share
Wells Fargo is one of America’s "big four" commercial banks, alongside Chase, Citigroup (C) and Bank of America (BAC). The company recently reported better-than-expected earnings. The quality of those numbers confirmed what many analysts believe: Wells Fargo has been able to build "a reputation as one of the strongest banks in the country," as ABC News reported. An indication of Wall Street’s admiration for the bank is that its share price has well outperformed its peers the past five years. Like the other large American banks, Well Fargo is highly diversified. It has retail bank operations, commercial operations that handle business lending, an investment bank and a wealth management business.
6. (tie) International Business Machines (IBM), market cap: $217.9 billion
• Forecast: Revenue of $107 billion, up 2%, earnings of $19 billion, up 10%
•Stock price: $194.47, trading between $177.35 – $211.79 per share
IBM is one of America’s largest tech companies. It is also one of the most diverse. Its strength in sales to corporations and government has allowed it to largely avoid many of the troubles that have faced firms like Dell (DELL) and HewlettPackard (HPQ), which are more dependent on sales to consumers. IBM has significant operations in Europe and Asia. It sells hardware — including mainframe computers — software and IT services. It also has consulting operations and a finance division. IBM is one of America’s oldest tech companies, and in 2011 celebrated the 100th anniversary of its founding. The company last year appointed its first female CEO — Ginni Rometty.
8. General Electric (GE), market cap of $222 billion
• Forecast: Revenue of $148 billion, up 2%, earnings of $18 billion, up 11%
• Stock price: $22.04, trading between $18.02 – $23.18 per share
GE is considered the world’s largest conglomerate. It provides global infrastructure products and services, health care systems, jet engines and transportation services, and household appliances. It also has a large financial services division. One of the major criticisms of GE management is that the company has grown very little over the past several years. Wall Sreet has reacted negatively, and the stock price has fallen by over a third over the past five years. GE CEO Jeff Immelt is highly visible in business and government circles, and currently heads the U.S. Jobs Council set up by President Obama.
9. Pfizer ( PFE), market cap: $197 billion
• Forecast: Revenue of $58 billion, down 1%, earnings of $17 billion, up 6%
• Stock price: $26.54, trading between $20.75 – $26.77 per share
Pfizer’s largest challenge, like that of most other large pharmaceutical companies, is the expiration of patents for much of its drug portfolio. Cheaper, generic versions of these drugs have taken market share. In a recent example, Pfizer had to drop the price of Viagra in Canada to compete with generic versions sold there. Pfizer has gone through a series of layoffs to protect its margins, most recently at its U.S. sales operations. In the latest reported quarter, revenue fell to $14 billion from $16.6 billion in the same period a year ago.
10. Wal-Mart Stores (WMT), market cap: $228.7 billion
• Forecast: Revenue of $467 billion, up 5%, earnings of $16 billion, up 10%
• Stock price: $69.20, trading between $57.18 – $77.60 per share
Wal-Mart employs more than 2 million people, making it the largest company in America by headcount. In the most recent Fortune 500 ranking, Wal-Mart fell just behind Exxon in total revenue. Wal-Mart is made up primarily of three divisions: Wal-Mart’s domestic stores, its Sam’s Club warehouse operation and Wal-Mart International. Wal-Mart has had a year marked by scandal. Allegedly, executives at the company’s Mexico division bribed government officials. Democratic Congressmen Elijah E. Cummings and Henry A. Waxman recently released information indicating Wal-Mart CEO Mike Duke was aware as early as 2005 of allegations company executives had bribed Mexican government officials.