By Eli Inkrot
What’s in a name? According to a recent study by Reputation Institute, it’s enough to make a consumer choose one company over another. Close to 33,000 consumers were asked to give their feelings on the 150 largest companies by revenue. Strong brand equity can mean pricing power and a sense of reliability. But isn’t this already factored into their share price? Let’s find out as we work through the top 10 most reputable companies.
1. Coming in at number one on the list is online retailer Amazon (NASDAQ:AMZN). The shopping experience is quick and dependable, while the free tax and shipping options are in abundance. Consumers cited Amazon’s ability to innovate as a main source of value. At first glance, the price to earnings ratio of 73 would say anything but value. But it is in line with the five-year average P/E ratio of 68 and anyone that has bought and held AMZN in the last 10 years has made money today. Without a dividend payment, investors are looking for growth. With a mean analyst target estimate of $190.52, that only allows for about a 3% upside today. Not exactly a value. The five-year average low P/E is around 36 so you might want to wait on this one.
2. Kraft Foods (KFT) has a strong showing on this year’s list, coming in at the second spot. Warren Buffett has a serious stake in this food giant, but has lost money to date. KFT has a P/E ratio of 13 and looks promising with an average analyst upside of about 9%. Add in the 3.7% current dividend yield and you’re starting to paint the value picture. Dividends have been stagnant for the last 11 quarters, but a 49% payout ratio suggest future increases are possible. Buffett might not love past management decisions, but he hasn’t jumped ship yet. KFT might be an opportunity to buy where Buffett did, with an appreciable upside and consistent dividend payouts.
3. Johnson & Johnson (NYSE:JNJ) might seem like an odd pick due to recent recalls and quality control issues. But I suppose these problems are reflected a touch as JNJ drops from number 1 in 2010 to the 3 spot this year. JNJ has a P/E ratio around 12 and an average analyst target upside of about 12%. Another Buffett holding, this healthcare giant provides one of the most consistent dividends around. JNJ has increased dividend payouts for 48 straight years and with its 45% patio ratio it looks to do it again this April.. Contrarian or not, JNJ might be a value opportunity.
4. 3M (NYSE:MMM) can boast about more than having a longer ticker than name, it can also be proud of its 4th place finish on the most reputable companies list. The industrial goods firm is a new to the top 10, but recent financial success makes 3M a candidate to stick. MMM has a P/E ratio around 17 and an average analyst target upside of about 10%. MMM ousts JNJ by five years with its streak of increasing payouts for 53 straight years ... although the current yield of 2.3% leaves something to be desired. The five-year average dividend growth rate under 5% and the near 52-week high should flag caution, but the 39% payout ratio suggest future sustainability.
5. Kellogg’s (NYSE:K) comes in at number 5 on this year’s list. In addition to its namesake brand, this snack friendly foodmaker also turns out brands like Keebler, Cheez-It, Austin and Famous Amos; those just sound reputable. K has an inline P/E around 16, but the appreciable upside appears to only be around 4% according to analyst targets. But K is in on the dividend game as well, having increased its payout for the last six years. The 3% current yield looks to increase again this August. The 49% payout ratio appears sustainable and the 8% 5 year dividend growth rate is okay. But to be honest, there’s definitely better values in both growth prospects and consistent high yielding dividends.
6. If you thought the ticker comparison for 3M was fun, you’re going to love UPS (NYSE:UPS). Making its mark at number 6, consumers see Big Brown’s wide exposure ia a top reason it made the list. Many cite the move towards electronic everything as a drag on UPS’s business, but the analysts appear optimistic with a one-year mean target upwards of 18%. UPS has a P/E ratio around 21. Additionally, the 2.8% current yield and 11 year history of dividend growth look enticing. What can Brown do for you? How about a potential one-year upside over 20%.
7. Competitor FedEx (NYSE:FDX) lags UPS by $43 billion in market cap, but comes up just a place shy in reputable business rankings at number 7. Good news for consumers receiving packages. If you thought UPS’s upside target was enticing, FDX will do you 4% better at a mean target about 22% higher than today’s price. Of the 24 analysts, the low target is at $90, just below the current price around $91. Out of the recession and growing, it looks like that means more delivery in the future. The P/E ratio for FDX is around 22. FDX also pays a dividend, although it won’t do much in the way of convincing income investors with its 0.5% current yield. It has grown payouts for nine straight years, but dividend advocates might enjoy a little more than the 11% payout ratio doles out.
8. Sara Lee (SLE) comes in as the third food company and the 8th overall rank on this year’s list, with a P/E ratio around 13. With brands like Hillshire Farm, Ball Park, Jimmy Dean and obviously Sara Lee it sure sounds delicious; much like KFT and K, it’s no secret why this company catches the consumer eye as reputable. The current yield of 2.5% is average and a lumpy albeit increasing dividend since 1986 looks reasonable. But analyst opinion doesn’t appear to be strong, as the mean target is just $18.20, compared to a current price of $18.35. Without the appreciable upside, that’s quite a bit of reliance on dividends.
9. Google (NASDAQ:GOOG) comes in at the 9 spot, the second Internet-based company. Whether consumers like the clean platform or the street view maps, either way it spells reputable. GOOG has a P/E ratio around 22. The new CEO, Larry Page, looks to make positive waves and the 31 analysts agree that he’ll do it with a mean target of $724, a 25% appreciable upside. GOOG looks like a mini-Berkshire right now with its no splits, no dividends frame of mind. If it hits its target, this could be the time buy GOOG while it’s over 10% off its 52-week high.
10. It seems to be a trend: Large exposure and friendly faces make companies at least appear to be reputable. Disney (NYSE:DIS) is no exception, rounding out the top 10. Not just kid-themed parks and movies, this entertainment giant holds huge brands such as ABC and ESPN, not to mention cruise ships and magazines. DIS comes in with a P/E ratio around 18. The appreciable upside is there with 21 analysts coming to mean target about 17% higher than today’s price. DIS has nearly doubled its dividend in the last 10 years, but the 1% current yield leaves much to be desired, especially with the 18% payout ratio. Growth investors see opportunity but dividend investors might not be there yet.
Whether or not a company is seen as reputable can have a significant impact on consumer decisions. After all, given comparable products, would you pick the one you can trust or the one that’s just a little bit shady? Pricing power and reliability can be motivating factors, but by themselves they are not enough pull the buy trigger on a given stock. Future prospects and individual goals should carry much more weight.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.