by Jeff Reeves | October 23, 2012 6:00 am
In these lean times, when earnings are set to slump in the current Q3 reporting season and could move even lower when companies report their fourth-quarter results in a few weeks, there’s a premium on efficiency. If you can’t find big revenue growth, the sad reality is that corporations need to protect the bottom line by cutting costs.
As a shareholder, nothing is more maddening than owning a stock of a company wasting money on unneeded staffing or spending money on fruitless projects that don’t bring in anything.
One of the easiest metrics of efficiency is a simple calculation that takes the total revenue in the company and divides it by the number of full-time employees. It’s an imperfect measure, but a helpful at figuring out whether a staff is really pulling their weight.
I focused on 10 different industries and dug into the numbers to identify which companies were the leaders. I largely limited myself to the S&P 500, though I had to throw in a few outliers that just had such staggering numbers they had to be mentioned.
Here are 10 of the most efficient stocks on Wall Street:
Netflix (NASDAQ:NFLX) is the winner in media because it has no print products, a simple distribution network through its streaming apps and website and little in-house production to do. The company boasts revenue per employee of about $1.47 million annually as a result.
If you don’t like small-caps, however, S&P 500 component Viacom (NASDAQ:VIAB) is worth a mention, too, boasting an impressive $1.27 million in annual revenue per employee. This is thanks to a reasonably small outfit — only 11,500 employees or so — and some of the biggest brands in entertainment, including MTV, Nickelodeon and Paramount Studios. It makes the blockbuster entertainment products, then lets the TV stations and movie theaters figure out the messy and labor-intensive logistics.
No surprise here, but at the head of the pack is Amazon.com (NASDAQ:AMZN) with a whopping revenue of $967,000 or so per employee. The company has pioneered the model of warehousing and e-commerce to limit costs, and without brick-and-mortar operations it can keep margins fat.
Of course, it’s worth pointing out that Costco (NASDAQ:COST) is at the head of the class, too, with over $600,000 in revenue per employee due to its bare-bones warehousing model. Compare that with typical retailers like Wal-Mart (NYSE:WMT), Target (NYSE:TGT) or Macy’s (NYSE:M) that all boast around $200,000 in revenue per employee.
AmerisourceBergen (NYSE:ABC) isn’t a household name, since it’s a behind-the-scenes pharmaceutical company that helps with the distribution and services of medications instead of the research of life-saving drugs. However, this difference actually is a huge plus since it means little research overhead and no risk of patent expirations — but a huge built-in demand as companies and patients all need help with their prescriptions. The recipe adds up to stunning $7.19 billion in revenue per employee for this healthcare service stock.
That’s a runaway winner, but if you want a company that actually is in the business of selling products, consider biopharmaceutical stock Gilead Sciences (NASDAQ:GILD) with revenue upwards of $2 million annually per employee.
As I recently highlighted in a full-length post about how Big Oil is more efficient than tech, you can’t go wrong with the major oil players when it comes to efficiency and scale. Among the 15 largest stocks on Wall Street (measured by market cap), Exxon Mobil (NYSE:XOM) is the runaway leader with $5.27 million in revenue per employee. Chevron (NYSE:CVX) is a respectable second with $3.84 million.
The many contractors to keep down overhead and the lucrative nature of tapping a successful find and letting the oil flow makes this one of the most cash-rich segments of the market when measured on a per-employee basis.
No surprise, right? Investment banking is a highly lucrative endeavor for the select few who can do it well. And KKR (NYSE:KKR) boasts north of $5.1 million in revenue per employee — though it obviously only has a handful of employees, not a staff in the thousands. There are fewer industries where such a small number of people can generate such huge revenue.
Also worth noting are the Bermuda-based reinsurance and “structured finance” companies. Take Assured Guaranty (NYSE:AGO), which turns about $3.8 million in revenue per employee. Without a retail banking operation but retaining the access to big-time capital markets, this makes these kind of financial companies the most efficient on a revenue basis.
You might think transportation will naturally involve many employees — drivers, pilots mechanics, deliverymen and so on — to make things efficient. Normally it does — but that’s why logistics giant C.H. Robinson Worldwide (NASDAQ:CHRW) is the leader here.
This firm manages to generate almost $1.3 million in revenue per employee because it doesn’t own and maintain a massive fleet of trucks — it simply offers services and support to supply chain and freight companies that do the heavy lifting. Unlike other industrial segments that are very draining on labor and capital, CHRW’s operation is lean.
Materials can be a capital-intensive enterprise with lots of heavy equipment and hordes of workers involved. However, fertilizer and chemical giant CF Industries (NYSE:CF) is at the front of the pack on a revenue per employee basis, throwing off more than $2.5 million per employee.
If you have never heard about the mega-margins at Apple (NASDAQ:AAPL), allow me to be the first to inform you. Gross margins on the iPhone regularly have topped 50% in the last few years — and that gives this company a huge advantage over its peers both in profitability and in efficiency.
The total revenue per employee is over $2.3 million annually at Apple. No other hardware stock comes close.
Industry: Technology Software
Google (NASDAQ:GOOG) might not be in the hardware space much (at least, not yet) but it is a giant in the software arena.
Google throws off almost $1.5 million per employee. The rest of this sector doesn’t even come close.
American Tower (NYSE:AMT) isn’t a massive company like AT&T (NYSE:T) or Verizon (NYSE:VZ), but that allows the company to stay lean and operate in a more focused manner. This wireless and broadcast networking company owns and operates communications towers that other media and telecom stocks can lease.
It’s a nice gig to be the middle man, since that allows AMT to generate almost twice the revenue per employee that the behemoths in the space do.
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP. As of this writing, he held a long position in Apple but no other stocks named here.
Source URL: http://investorplace.com/2012/10/lean-n-mean-10-of-wall-streets-most-efficient-stocks/
Short URL: http://invstplc.com/1fuNEav
Copyright ©2015 InvestorPlace Media, LLC. All rights reserved. 700 Indian Springs Drive, Lancaster, PA 17601.