"The Most Sustainable Company in the World"
Tyler is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
In January of 2012, Business Magazine released a list of the most sustainable companies in the world. You might be surprised to see who topped their list. I was surprised that it wasn't a company like Apple, but rather a company in the pharmaceutical industry. As a type 1 diabetic, I understand the costs that go along with the disease. However, even I was surprised to see a company whose primary focus is diabetes at the top of this list.
According to the CDC (center for disease control and prevention), diabetics face medical expenses more than twice that of someone without the disease. I use a Medtronic (NYSE: MDT) insulin pump, a device that is used for the continuous administration of insulin. There is currently no way to prevent type 1 diabetes, however it only accounts for 5% of all diagnosed cases of diabetes. Though it may not seem like much, 9.2% of Medtronic's revenues are generated as a direct result of this disease. This is approximately $1.5 billion every year.
Quite frankly, I'm surprised its not more. If it weren't for health insurance, I would be regularly paying around $1,000/quarter to Medtronic just for supplies. The company shows a market cap of just under $48 billion. Bristol-Meyers Squibb (NYSE: BMY) is a company that produces "antidiabetic" medicines. This is a smart move considering the CDC shows that over 35% of Americans have diabetes or pre-diabetes. They expect that by 2050, one in three Americans will be diagnosed with the disease. However, Bristol-Meyers only generates about 5% of their $17.6 billion from these medicines.
Eli Lilly (NYSE: LLY) is a pharmaceutical company that generates $22.6 billion/year -- nearly 17% of that is directly from insulin products. Humulin and Humalog are both produced by Lilly, and Humalog is probably the most common fast-acting insulin used. Eli Lilly has seen six increases in earnings per share over the past ten years. This is two fewer than Medtronic and the same amount as Bristol-Meyers. Revenues for these companies have increased for ten consecutive years for Medtronic, nine of ten years for Lilly, and six of ten for Bristol-Meyers. Remember, Bristol-Meyers acquires a smaller percentage of revenue from diabetes than either Medtronic or Eli Lilly.
So, the most sustainable company in the world according to Business magazine? Novo Nordisk (NYSE: NVO). The company's vision is to:
Defeat diabetes by finding better methods of diabetes prevention, detection and treatment. We will work actively to promote collaboration between all parties in the healthcare system in order to achieve our common goals.
Believe it or not, Novo Nordisk has a market cap of $95 billion, 43% higher than the next company in this post, Bristol-Meyers. Novo Nordisk has experienced ten consecutive revenue increases, and earnings per share that have risen nine of the past ten years. How have these stocks performed? Lilly has done extremely well in the past year, but Novo Nordisk steals the show of long-term performance.
Novo Nordisk has performed overwhelmingly better than the other companies in the past decade. Amazingly, it also shows an earnings yield of 21.2%. Medtronic, Bristol-Meyers, and Eli Lilly show earnings yields of just 7.1%, 2.9%, and 6.5%. Is it coincidence that a diabetic focused company has better earnings, more consistent revenue increases, better stock performance, and provides the best value for investors?
Diagnosed cases of diabetes have been steadily rising for years and continue to do so. Type 1 diabetes is rising approximately 3% globally each year, with type 2 growing much more rapidly. The graph below will explain why I believe that companies focused on this disease will perform well in the future.
The Foolish Bottom Line...
Is diversity good? Generally speaking, I believe it is. However, Novo Nordisk may be the exception to this rule. They are a diabetic based company who is bigger and performing better than other more diversified pharmaceuticals. Novo Nordisk releases its earnings report on May 1, and we can then see how much of the $200 billion/year spent on diabetes is controlled by this company.
Tyler Wofford has no position in any stocks mentioned. The Motley Fool owns shares of Medtronic. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!