America's Best Run Companies

The stocks of many public companies have soared in the past year, even with a larger number of them posting only mediocre financial results. The overall market improvement has been that strong. However, some companies were able to shine above the rest, both in terms of stock prices and financial results, which puts them into a very exclusive category.

24/7 Wall St. picked eight companies as the best run in American because they had extraordinary numbers based on three key measures in the past year: earnings per share, revenue and share price. To be considered for the list, companies ultimately also had to convince investors that they had very bright futures. The eight companies highlighted here have track records of seizing opportunities, excelling in their industries and outperforming the expectations set by investors.

Click here to see America’s best run companies

Click here to see America’s worst run companies

While the U.S. stock market has enjoyed a rally in the past five years, the best run companies reviewed by 24/7 Wall St. greatly exceeded the S&P 500’s 86.4% increase. Under Armour Inc. (NYSE: UA) is the most notable example as its shares soared more than 900% over the period. The share prices of O’Reilly Automotive Inc. (NASDAQ: ORLY) and Southwest Airlines Co. (NYSE: LUV) have had share price results nearly as good during the past five years, up 410% and 290%, respectively.

Some of the best-managed companies have capitalized on key opportunities and are now reaping the benefits. For example, Lam Research Corp. (NASDAQ: LRCX) positioned itself as a leader in producing machinery for semiconductor manufacturers, especially memory chip makers, at a time when such manufacturers have been ramping up capital spending. Another example is O’Reilly, which has expanded its store footprint and retail infrastructure to efficiently meet the growing demand of the do-it-yourself car repair market, as well as the commercial auto repair one.

In other instances, companies have calmed investors’ concerns and beat their expectations. Facebook Inc. (NYSE: FB) is one of the strongest examples of this. The social network has defied skepticism about its ability to make money on mobile ad sales, and such sales now account for about 66% of its revenue.

A few companies have succeeded by offering best-in-class products and services. Marriott International Inc. (NYSE: MAR) is extremely popular with franchisees looking to operate a hotel, a key advantage in its industry.

Edwards Lifesciences Corp. (NYSE: EW) rolled out in the United States its Sapien XT transcatheter aortic valve replacement, which is used in patients who cannot undergo open-heart surgery. Sapien XT outperformed a similar product produced by competitor Medtronic, according to a study published in the Journal of the American Medical Association.

Many of these companies still have significant challenges ahead. In some cases, they must justify their very high valuations. Facebook trades at more than 41 times expected 2015 earnings and Under Armour at nearly 56 times forward earnings. Edwards must clear Food and Drug Administration hurdles to bring its next product, Sapien 3, to market in time to satisfy Wall Street. And Southwest Airlines and Marriott remain especially sensitive to unexpected changes in the U.S. economy, which affect how often people travel.

In order to determine America’s best run companies, 24/7 Wall St. reviewed all S&P 500 stocks that rose in the past year. We then screened for companies where the trailing 12-month revenue and diluted earnings per share had grown from the year before. 24/7 Wall St. editors then reviewed this list to find those companies that had capitalized on major opportunities to expand, that made operational choices that could drive their future performance over a multiyear period or that have proven themselves as clear market leaders. Figures on revenue and diluted EPS, as well as industry classifications, are from S&P Capital IQ. One-year share price data, also from CapIQ, is as of December 22, 2014. Marriott International’s revenues include cost reimbursements.

These are America’s best run companies.

1. Southwest Airlines Co.
> Industry: Airlines
> Revenue (last 12 months): $18.4 billion
> 1-year share price change: 118.8%

Southwest Airlines had an incredibly strong year in 2014. The airline reaped the benefits of a commitment to domestic flights and of a revenue strategy that did not depend on baggage fees. Although it is a now-common industry practice, Southwest believed baggage fees would undermine its ability to appeal to consumers. Also, Southwest was able to add major routes from its home airport, Dallas Love Field, after the repeal of the Wright Amendment, which limited flights from its hub to just nine states.

Some of Southwest’s strong performances can be attributed to overall positive industry trends: fuel costs have declined; the U.S. economy has improved; industry consolidation has allowed airlines to pack planes more efficiently; and passengers flew more last year than they did in 2013. Moreover, Southwest has outperformed where it matters most — profitability. On a trailing 12 month basis, the airline’s operating margins were better than those of the three national legacy carriers: American Airlines, United Continental, and Delta Air Lines.

ALSO READ: The Most Dangerous States in America

2. Edwards Lifesciences
> Industry: Healthcare equipment
> Revenue (last 12 months): $2.2 billion
> 1-year share price change: 103.2%

For heart valve maker Edwards Lifesciences, 2014 was a banner year, as its share price more-than doubled. The company received approval from the Food and Drug Administration in June to release its newest device, Sapien XT, a transcatheter aortic valve replacement (TAVR) device. For many high-risk patients, the less invasive TAVR procedure is more suitable than open heart surgery. In the first nine months of 2014, Edwards’ sales of transcatheter heart valves rose by 29%, driven by the launch of the Sapien XT in the U.S. and Japan, as well as by the release of the newer Sapien 3 in Europe.

According to J.P. Morgan, “Over the last half dozen years, Edwards has led the development of the transcatheter valve market – first in Europe, then the US, and now in Japan.” A recent study published in The Journal of the American Medical Association found that the Sapien XT was more likely to be successfully implanted compared to a rival product from Medtronic.

3. Marriott International
> Industry: Hotels, resorts, and cruise lines
> Revenue (last 12 months): $13.5 billion
> 1-year share price change: 62.9%

Marriott International shares rose substantially in 2014 on the back of an extremely strong year for the company. In the third quarter of 2014, Marriott’s occupancy rate and average daily rate per room were both well above the prior year’s figures. This led to a 9.4% year-over-year increase in revenue per available room (RevPAR), extending a multi-year growth trend following a massive decline in RevPAR during the Great Recession. Higher revenues have also driven up profits. Through September, diluted earnings per share were up more than 23% in 2014 from the year before.

According to a recent report from Barclay’s, Marriott is among the leading hotel chains in adding new units. Barclay’s also noted that both franchisees and lenders prefer Marriott to most other hotel franchisors. The majority of hotels operating under one of Marriott’s brands are franchised.

4. The Kroger Company (NYSE: KR)
> Industry: Food retail
> Revenue (last 12 months): $106.5 billion
> 1-year share price change: 61.8%

Kroger has had an extremely strong year. Identical supermarket sales, which tracks sales at supermarkets open five quarters without a relocation or an expansion, were up 4.7% year-over-year in the first nine months of 2014, and up 5% excluding fuel.

New, aggressive initiatives have been a major factor in Kroger’s recent success. Kroger has made a number of successful management decisions, including the acquisition of grocer Harris Teeter, and the expansion of its natural and organic offerings, including its private label brand Simple Truth. According to a report from Morgan Stanley, “Kroger is well positioned to benefit from health and wellness offerings, [the] Harris Teeter merger, and [an] increased digital focus.”

Kroger is among the largest employers in America. It had more than 375,000 associates as of September, when it announced plans to expand headcount by 20,000.

5. Under Armour
> Industry: Apparel, accessories, and luxury goods
> Revenue (last 12 months): $2.9 billion
> 1-year share price change: 58.2%

Through the first three quarters of 2014, revenues at Under Armour rose by almost one-third, to nearly $2.2 billion. The company also said in October that it expected revenues to break $3 billion for the first time in its history in 2014. According to The Wall Street Journal, Under Armour surpassed Adidas earlier this year as the number two sportswear company in the U.S. But to catch frontrunner Nike, Under Armour will have to grow substantially — Nike’s most recent quarterly revenues totalled $7.4 billion.

Still, Nike is likely feeling some pressure, especially given Under Armour’s recent success with women. When Yahoo Finance chose Under Armour its 2014 Company of the Year, it also mentioned its growing women’s line. Similarly, when Advertising Age named Under Armour its 2014 Market of the Year, it focused on its highly successful directed-to-women marketing campaign.

ALSO READ: The Safest States in America

6. O’Reilly Automotive
> Industry: Automotive retail
> Revenue (last 12 months): $7.1 billion
> 1-year share price change: 51.4%

In a retail landscape where many companies have opted to shrink their store base, O’Reilly Automotive has thrived by expanding it. The company spent aggressively to grow its two target markets: do-it-yourself customers and do-it-for-me customers. According to Morningstar, “O’Reilly holds a considerable lead over [its] rivals thanks to its expertise, customer relationships, and extensive infrastructure lead.”

These investments have paid off. Revenue was up 9% year-over-year in the third quarter of 2014, while comparable sales rose by 6.2% from the same quarter the year before. Bottom line growth was even better, as diluted earnings per share rose by 22% in the third quarter, the 23rd consecutive quarter in which diluted EPS rose by more than 15% year-on-year.

The company actually managed to capitalize from the weak economy of the recent years as many Americans have had to replace car parts to extend the life of their cars rather than buy new ones. However, not all of O’Reilly’s success came from industry tailwinds. According to R.W. Baird, “O’Reilly has a superior mousetrap in auto part retail,” with “superior customer service, better part availability, and a favorable mix of commercial business.”

7. Lam Research Corporation
> Industry: Semiconductor equipment
> Revenue (last 12 months): $4.7 billion
> 1-year share price change: 51.3%

Lam Research makes the equipment that semiconductor manufacturers use in chip production. With ever shrinking chip sizes, Lam’s equipment is critical in fabricating integrated circuits at a microscopic scale.

Lam has definitely benefited from growth in the semiconductor industry, which World Semiconductor Trade Statistics estimated grew by 9% in 2014. Gartner estimated in October that manufacturers have increased spending by 11.4% in 2014 and will increase spending by another 8.8% this year, with outsize growth among memory chip makers. Stifel Nicolaus analyst Patrick Ho wrote in a December note that he believes Lam is among the companies that will best take advantage of this growth

In addition to being well positioned to take advantage of industry trends, Stifel also noted that Lam has launched an aggressive share buyback campaign and instituted a dividend.

ALSO READ: The 10 Dying (and 10 Thriving) U.S. Industries

8. Facebook, Inc.
> Industry: Internet software and services
> Revenue (last 12 months): $11.2 billion
> 1-year share price change: 47.8%

Perhaps no company’s CEo has been in the spotlight as much as Facebook’s Mark Zuckerberg has. At just 30 years old, Zuckerberg and the story of the birth of his social network were already the subject of a major Hollywood movie. Zuckerberg also spent part of 2014 meeting with heads of state in the United States, Japan, India, and Indonesia.

Yet, in his role as the head of a public company, Zuckerberg has been remarkably successful. Last year, Facebook dispelled concerns about its ability to generate mobile revenues. And its 2012 decision to buy mobile photo-sharing app Instagram now appears extremely prescient In addition, Facebook was also one of the nation’s best to work for, according to its rating on career site Glassdoor.com

As of the most recent quarter, Facebook increased daily active users by 19% year-over-year and mobile daily active users by 39%. Further, 66% of advertising revenues came from mobile, thus effectively eliminating any doubts about the viability of the company’s mobile strategy. On a trailing 12-month basis, Facebook’s revenues rose by 63%. Company margins, too, expanded considerably.

Click here to see America’s worst run companies