Darden's Batten Institute Announces that Decade-Long Study of Corporate Earnings Points the Way to Outperforming Stocks
Prof. Ed Hess' "OGI" Identifies 27 Organic Growth All-Stars Whose Stock
Bested S&P 500 by Factor of Ten over Ten-Year Period
"Organic Growth Index" Proves Key to Uncovering Consistent Earnings and
Stock Performance in Both Bull and Bear Markets
CHARLOTTESVILLE, Va., March 14 /PRNewswire/ -- The Batten Institute, part of the University of Virginia's top-ranked Darden School of Business, has released the latest results of a decade-long study of corporate earnings, establishing a correlation between "Organic Growth" and outperforming stocks. The companies revealed by the study are "All-Stars" of Organic Growth -- as measured by the Organic Growth Index (OGI) from Darden Professor of Business Administration and Batten Executive in Residence Ed Hess. In addition to consistent growth in underlying earnings, as measured by the OGI, the company's share prices have outperformed the S&P 500 by a factor of ten over the past ten years. The results from 2003-2006 have just been revealed, finalizing the ten-year study. "Once you get past the 'noise' that is in most companies' reported numbers, there is an incredible correlation between what I call real growth, and the recognition of that value in the stock market," said Professor Hess, whose book on OGI is entitled The Road to Organic Growth. "These companies have shown that they can grow in good times and bad. It's not about the economic cycle. It's about the business model." Professor Hess applied the OGI screening process to over 1300 companies over the 10-year period that were leaders in Economic Value Added (EVA) creation. Applying the OGI model to that pool narrowed it down to a list of 27 "All-Stars," which qualified in at least four different time periods studied by Professor Hess. His report notes the following:
-- Actual 10-year returns (1996-2006) for the OGI All-Stars were over 1,368% vs. approximately 130% for the S&P 500 Index and 144% for the Dow Jones Industrial Average -- The average market capitalization of the All Stars is $9.72 billion -- 50% of the All-Stars are in retail or casual restaurant industries "Organic growth is growth the old fashioned way: more customers, more products, better operating efficiencies," continued Professor Hess. "Organic growth represents the underlying strength and vitality of a company's business model. In contrast, there are many ways to create reportable earnings: accounting elections, valuations, income recognition changes, financial engineering, currency gains, investments, etc. We have become a "play dough" economy- manipulating and rearranging assets - as opposed to growing - businesses." Professor Hess has identified four key attributes of strong organic growth companies:
1. Utilizes simple-focused business strategies, implemented by management who are "execution champions"; 2. Top management is homegrown and made up of "humble, passionate operators"; 3. A highly-engaged workforce characterized by a strong degree of loyalty and productivity; and 4. Operates with a seamless, self-reinforcing internal growth system Professor Hess further commented, "This study is one of five major research projects currently underway at the Darden School, all funded by The Batten Institute. Each, in its own way, is working to crack the DNA of organic growth from different discipline perspectives: accounting, organizational design, leadership, customer intimacy, options theories of growth initiatives, and employee engagement." Professor Hess concluded, "It should not require as much deep research and analysis as we had to conduct to generate this type of information. I think that the Securities and Exchange Commission should require companies to transparently disclose their organic growth and how they are creating other earnings. Such disclosure may lead to organic growth being rewarded a valuation premium by the markets. If that turns out to be the case, the policy might motivate corporate leaders to focus more on organic growth which produces innovation, jobs and competitive advantage." More information on Professor Hess' study and the Organic Growth Index is available at the link below, followed by a list of the 27 All-Stars.
http://darden.edu/html/standard.aspx?menu_id=204&styleid=3&id=2492 -- American Eagle Outfitters -- Applebee's Intl. -- AptarGroup -- Avon Products -- Bed Bath & Beyond -- Best Buy Co. -- Brinker Intl. -- Columbia Sportswear -- CoPart -- Coventry Health Care -- Dollar General -- Dollar Tree Stores -- Express Scripts -- Family Dollar Stores -- Intl. Game Technology -- Hormel Foods -- Lincare Holdings -- Lowe's Companies -- NVR -- Omnicom Group -- OSI Restaurant Partners -- Paccar -- Ross Stores -- SYSCO -- TJX Companies -- Total System Services -- Walgreen About the Batten Institute The Batten Institute advances the study and practice of entrepreneurship and innovation by uniting three distinct elements -- thought-leading research, student-centered teaching, and hands-on learning -- to give Darden's unrivaled educational experience The Batten Edge. For More Information Visit: www.darden.edu/batten
SOURCE Batten Institute
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