Economies of Scale: Big Companies and Small Countries
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I just read a J.P. Morgan research note which theorized that sales of the new Apple (NASDAQ: AAPL) iPhone 5 alone could help the U.S. economy grow by an additional 0.25% to 0.33% in the 4th quarter. The U.S. gross domestic product (GDP) is pegged to increase at a very lackluster annual rate of 2.0%. Any additional help would be welcome.
Apple might sell 35 to 45 million of the new devices this year according to some analysts. This, potentially, is a 33% increase in smartphone sales for the company and could help accelerate earnings above the already impressive 83% gain from 2010 to 2011. Incredible.
It got me thinking about how powerful some companies really are.
According to Fortune magazine the top three companies by revenue in 2011 were ExxonMobil (NYSE: XOM), Wal-Mart Stores (NYSE: WMT), and Chevron (NYSE: CVX). Combined, the sales generated by these companies comprise 7.6% of total U.S. economic output and 1.6% of the world GDP. Too big to fail? Apple ranked # 17 in revenue.
Only 26 countries had a higher GDP in 2011 than the revenues generated by either ExxonMobil or Wal-Mart. If Chevron was a country it would rank 40th in the world. I am making the assumption that GDP, which is usually defined as the total value of all goods and services produced within a country's borders, is similar to revenue generated by a company's operations.
| Company | 2011 Revenue ($B) | Company Rank | Rank if Country * |
| XOM | 452.93 | 1 | 27 |
| WMT | 446.95 | 2 | 28 |
| CVX | 245.62 | 3 | 40 |
| AAPL | 108.25 | 17 |
59 |
(*) Based upon country GDP data from the International Monetary Fund (IMF)
| Country | 2011 GDP ($B) | Country Ranking |
| U.S. | 15,066 | 1 |
| Taiwan | 466.8 | 26 |
| Argentina | 447.6 | 27 |
| Israel | 242.9 | 40 |
ExxonMobil and Chevron are energy companies and their fortunes are tied to the price of and demand for crude oil and the boom in natural gas exploration and production. Projections are that both companies will see revenue and earnings growth this year and next.
ExxonMobil has seen an average of 14.3% earnings growth per year from 2001 to 2011. Earnings grew 35% from 2010 to 2011, which is very agile for a company with a market cap of more than $450B. A rate like that is more typical of a "high growth" technology company. As I mentioned earlier, Apple, which recently surpassed ExxonMobil for the top spot in market cap (it's now well over $600B), grew earnings 83% from 2010 to 2011.
The results at Chevron were even better than its bigger rival with an average of 24% annual earnings growth over the past 10 years and 41% from 2010 to 2011 alone. Coupled with other solid fundamentals such as a good valuation (P/E = 8.9), lots of cash ($20 per share), low debt (debt/equity = 8%) and great management this bodes well for the future.
Wal-Mart was the # 1 ranked company on Fortune's list in 2009 and 2010. The discount retailer has notched average earnings gains of 8% per year since 2001 but grew only 1% from 2010 to 2011 mainly because the company had to cut prices to spur lagging same-store sales. However, this didn't slow down the upward march of the stock price that much. Shares of Wal-Mart recently touched an all-time high before pulling back slightly. Most of the company fundamentals, including the fact that it has $12B in cash and a great brand, appear strong at this time.
So based upon one projection it appears that in addition to growing Apple earnings increased iPhone sales will help the U.S. economy. I intend to do my part by buying a new device. I recommend that everyone do the same. You may also want to buy some oil or gas products or shop at Wal-Mart too.
Mathman6577 owns shares of Apple. The Motley Fool owns shares of Apple and ExxonMobil. Motley Fool newsletter services recommend Apple and Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
