BARCLAYS PRESENTS: The 39 Most Innovative Public Companies In America (NFLX, WMS, GIS, ABT, BDX, GILD, HOLX, ILMN, ISRG, LIFE, MDT, QGEN, QSII, RMD, STJ, TECH, VAR, WST, EMR, HEI, LECO, TGI, WWD, AAPL, ADTN, ADVS, BRCM, CREE, CSCO, DLB, FLIR, GOOG, NTAP, NUAN, ORCL, SYNA, TQNT, VPRT, MON)
With U.S. corporates sitting on ever growing stockpiles of cash, companies have to find new businesses and projects to put capital to work.
Barclays analyst Gavin Smith is out with a list on the 39 firms he believes can successfully innovate their way forward.
Smith looked at five criteria when assembling the list:
- Research and Development intensity average greater than 1 percent over past five years (intensity is defined as R&D divided by sales)
- Proven record of turning innovation into profitability
- Net Debt over EBITDA under 3x to limit funding constraints
- Premium of price-to-earnings ratio below 50 percent to limit overpaying for an equity
- Market cap over $1 billion
Barclays focused on firms with low debt financing because R&D projects are often hit-or-miss. High debt financing requires a firm to generate stable profits to pay off interest expenses — something R&D projects cannot always guarantee.
Two industries clearly dominate Smith's list: technology and healthcare firms.
"We believe this screen is particularly relevant given the high levels of cash on firms’ balance sheets," Smith says. "The screen is a good starting point for understanding which firms have success at deploying cash on innovative projects."
Netflix Inc.
Ticker: NFLX
R&D Intensity: 7 Percent
Net Debt/EBITDA: -0.9
Barclays Performance Score: 2.5
Company Description: Netflix offers DVD and Blu-ray rental by mail, as well as video streaming in the US. It is headquartered in Los Gatos, California.
Source: Barclays
WMS Industries Inc.
Ticker: WMS
R&D Intensity: 13 Percent
Net Debt/EBITDA: -0.2
Barclays Performance Score: 2.2
Company Description: WMS manufactures and distributes games to the gambling industry.
Source: Barclays
General Mills Inc.
Ticker: GIS
R&D Intensity: 2 Percent
Net Debt/EBITDA: 2.3
Barclays Performance Score: 2.0
Company Description: General Mills sells consumer food products including cereal, snacks, vegetables, and yogurt.
Source: Barclays
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