The cumulative stock price of the 10 largest publicly traded companies headquartered in Greater Hartford soared in 2014, outperforming all three of the leading national market indexes.
The Hartford 10 stock price increased 23 percent over the course of the year — as of market close on Dec. 9 — beating out the growth of the Dow Jones Industrial Average (8 percent), S&P 500 (12 percent), and Nasdaq (15 percent).
Individually, stock prices from eight of the 10 Hartford companies outpaced all three national indexes, experiencing strong growth during the year. Cheshire drug maker Alexion Pharmaceuticals had the largest stock price increase (51 percent) and the highest valued stock at $199.77 per share.
Overall, the Hartford 10 benefitted from: strong profit margins in industries like insurance; investor confidence in utility companies; and the emergence of relatively young companies like Alexion and Windsor hedge fund administrator SS&C Technologies.
It’s no surprise that the success of the region’s largest publicly traded companies coincided with a relatively strong year for Connecticut’s economy, which added 18,300 jobs through October.
The private sector led that job growth adding 22,100 jobs, according to the state Department of Labor.
“We are in a good business,” said Patrick Pedonti, chief financial officer of SS&C, whose stock debuted on the Nasdaq exchange at $15 per share in 2010 and reached $53.71 per share this year. “Wealth around the world is growing, and managed assets around the world are growing.”
The worst performing Hartford 10 company saw its chief executive resign this year. United Technologies Corp.— which is the most highly valued company of the group — saw its stock price rise only 2 percent during the year.
By comparison, UTC competitor Honeywell saw its stock price increase 10 percent. Louis Chenevert, UTC’s chairman and CEO, left his position in November.
“I hope we don’t get to the point where directors look at the stock price and if it drops a little bit, they get rid of the CEO; but there is some element there at UTC,” said Chip Pettengill, portfolio manager for Cincinnati investment advisory firm Bahl & Gaynor, who covers UTC. “There is a little bit of a sense that he wasn’t as engaged as he should have been, and that may be a reason that the stock hasn’t done as well.”
While UTC’s stock stagnated, Alexion was able to ride the success of its drug Soliris. The drug used to protect the immune system after organ transplants received regulatory approvals in Europe and the U.S., and sales of the drug boosted the company’s revenues, leading to heightened investor interest.
Alexion, founded in 1992, has seen its stock value rise steadily from $6 per share 10 years ago to the nearly $200 per share it’s valued at today. CEO Leonard Bell, who co-founded the company, took over as chairman in October after former chairman, Max Link, died at age 74.
The rise of Alexion’s value mirrors that of UTC’s during the CEO tenure of George David, who took a stock valued at $7 per share in 1994 and increased it almost 900 percent by the time he handed the reins to Chenevert in 2008.
When Chenevert took over, UTC’s stock was trading at a premium, and now after his departure, it is trading at a discount, said Pettengill. Some part of that can be attributed to the way Chenevert ran the company, but other factors like the Great Recession also took their toll on UTC’s stock price.
“The stock price performance and the underlying financial strength of a company can be different at times,” Pettengill said. “In any given year or two-year period, those two can be divorced from each other.”
During the second half of 2014, UTC’s organic growth was outpacing the industry, Pettengill said, leading to a stock price increase prior to Chenevert’s departure.
Regardless of the circumstances of Chenevert’s retirement, the company is positioned well for the next five years as Greg Hayes takes over as CEO, with East Hartford subsidiary Pratt & Whitney selling its geared turbofan engines and UTC reaping the benefits of its $16 billion acquisition of Goodrich Corp., Pettengill said.
“You’ve got some really dominant companies and a really engaged, smart CEO, so I would say the period of underperformance is more than likely coming to an end here,” Pettengill said.
Two other Hartford 10 companies with significant stock price growth in 2014 were insurers Aetna (31 percent) and Cigna (20 percent), which were buoyed by the insurance sector’s strength, said David Windley, managing director of Westport stock broker Jefferies & Co., which tracks the insurance industry.
Two other major publicly traded insurers with a significant presence in Hartford but headquartered in Minnesota, UnitedHealthcare and Travelers, also saw significant stock price jumps this year at 35 percent and 18 percent, respectively. Another Hartford headquartered insurer — The Hartford Financial Services Group — saw its stock price rise 15 percent.
Health insurers had strong profit growth as a result more people buying insurance — due to the Affordable Care Act — but not using the medical services the coverage provides, Windley said.
“These companies continue to retain strong margins,” Windley said.
People, in general, are using medical services at historically low levels because shifting co-pays and deductibles have made it more expensive to go to the doctor. Also wellness programs and better managed care have prevented the need for more expensive medical procedures, Windley said.
Aetna’s stock performed better than Cigna’s because it is a major provider of Medicaid coverage, a government funded program whose usage has increased because of the Affordable Care Act, Windley said.
This has increased Aetna’s profitability and value to investors.
“Aetna has been a little bit more aggressive — call it shareholder friendly — with its dividend policy,” Windley said.
