US and Tech Companies Lead in Value Creation

US companies again dominate the list of the world’s top value creators, taking six of the top ten spots for global large-cap companies in the 2017 value creators rankings released by The Boston Consulting Group (BCG).

Technology, media, and telecommunications have replaced the pharmaceuticals industry as the primary value-driving sectors in the top ten. TMT companies hold down seven places on this year’s list while pharma, which claimed four of the top ten slots in 2016 (including the top three) and five in 2015, is absent.

Since 1999, BCG has published annual rankings of top value creators, measured on the basis of total shareholder return over the previous five-year period. The 2017 rankings reflect an analysis of TSR at approximately 2,350 companies worldwide (of which some 30% are US-based) from 2012 through 2016.

TSR measures the combination of share price gains and dividend yield for a company’s stock over a given period. It is the most comprehensive metric for performance in shareholder value creation. Average annual TSR represents the amount of TSR that a company delivered, on average, over the five years covered in our analysis.

In addition to providing our large-cap ranking of five-year TSR at the world’s 200 largest companies by market valuation, the 2017 Value Creators rankings include rankings of the top ten value creators in 32 industry sectors.

The top ten large-cap value creators for the five years 2012 through 2016 delivered an impressive average annual TSR of 41%. By way of comparison, the average annual TSR for the next ten best companies was a still impressive 29%.

The overall average annual TSR for all the companies in this year's value creators database was 16%, well above the long-term average of about 10% for the S&P 500.

Among industry sectors, mid-cap pharma ($4 billion to $17 billion in market cap) ranks first in average value creation, as it did last year. Other top-five sectors are consumer durables, automotive components, financial infrastructure providers, and medical technology.

A Look at 20-Year TSR Success Stories

In addition to assembling the five-year rankings, BCG looked at long-term and consistent value creation.

From 1996 through 2016, nine companies among the largest 200 have been top-quartile value creators in at least three of the four five-year periods. They top the consistent value creators list for the past two decades because they generated average annual TSR numbers of 17% to 32% a year over 20 years. Two are pharma companies, two are tech firms, and two are tobacco companies. One comes from media and publishing, and one from health care. Amazon straddles tech and retail. Seven are based in the US, one in the Netherlands, and one in South Africa.

“For consistent value creators, the strong tailwinds of a growth industry help. But far more important are management’s understanding of different value delivery models, its willingness to adapt its strategy and capital allocation to meet evolving conditions, and its ability to balance short-term targets and longer-term TSR goals,” said Jeff Kotzen, a BCG senior partner. “Regardless of time frame, top performers set their sights on winning in their industry or peer group—and they deliver.”

Added Gerry Hansell, a BCG senior partner: “The likelihood of beating the market—especially by a wide margin—year in and year out, is low. For companies in mature industries, the challenge is even greater because growth is such an important driver of long-term TSR. That said, companies in mature industries still can drive value creation by improving efficiency, allocating capital prudently, and returning cash to shareholders rather than investing it in low-return growth opportunities.”

 

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