The Undercover Boss Effect: Does the Reality Show Influence Its Featured Company's Share Price?
Here's what happened to the stock price of 10 public companies after the CEO of each appeared on the hit CBS show.
The show allows execs an "unfiltered look inside their own companies" whereby they'll witness firsthand the professional and personal struggles of their subordinates and, by the episode's dramatic denouement, resolve to make things right. Underscored by a heartfelt cymbal roll crescendo, rewards are granted to teary, grateful employees in the form of promotions, small sums of money and paid vacations -- or they may be promised some kind of systemic corporate change. But the charity parceled out by the benevolent boss is returned to him and his company in spades by the network.
Consider, first, the free advertising provided to the company during this hour-long program. To reach the 17.7 million viewers who watch Undercover Boss, CBS charges $152,840 for each 30-second spot that airs throughout the show. So while AT&T (T) or Pfizer (PFE) pay full price to run their ads, the company featured on each episode (at a running time of 42 minutes) is effectively getting a complementary $12,838,560 commercial. Not a shabby return on the six-month paid leave that CEO Kimberly Schaefer offered a grief-stricken mother who'd been working double shifts at Schaefer's Great Wolf Resorts (WOLF).
This public relations goody often appears to translate into a substantial company stock uptick, which may be attributable to any number of causes, of course. Still, we wonder, is there an Undercover Boss Effect?
Shares in 1-800-Flowers (FLWS) reached a 52-week high four days after the flower retailer's episode aired in April 2010. Of course, this in no way should diminish the fairy tale ending floral designer Dee got when President Chris McCann named a flower arrangement named after her.
Going into its October 2010 Undercover Boss episode, DirecTV (DTV) was already on a roll with shares up more than 25% that year while competitor Comcast (CMCSA) was lagging behind at 6.52%. But the company's good fortune continued after its CBS appearance and, in its Q4 report, announced its largest quarter in 10 years. Record setting profits befell the broadcast satellite provider with 667,000 net new subscribers, a 79% increase over the previous year.
Analysts suggested that the gain was the result of "massive subscriber growth in the U.S. and Latin America regions, as well as average monthly revenue per subscriber growth of 4.6% at DirecTV U.S. and $59 million of net revenue generated by DirecTV Sports Networks, which was acquired as part of the transaction with Liberty Media Corp. in November 2009."
Choice Hotels (CHH) president and CEO Steve Joyce, somehow overlooking the opportunity to gain an understanding of what his employees endure on a daily basis, spelled out his motivation for appearing on the show. "I am extremely excited for Choice and our franchisees, as Undercover Boss will generate significant attention for us and our family of brands," said Joyce. "This is a remarkable opportunity for Choice, and I'm thrilled that our hotels, our franchisees and our organization are going to be featured in front of a national audience of millions of people."
The hotelier experienced a more than two-point share bump between the last trading day before its episode's September 2010 air date and the first day following the show. Moreover, according to its fourth quarter earnings report, total revenues for the three months ending December 31, 2010 increased 10% compared to the same period in 2009. Choice Hotels has since returned a 7.37% increase compared to rival Marriott's (MAR) 5.65%.
The February 7, 2010 series premiere featured solid waste industry leader Waste Management (WM). The month before President and C.O.O. Larry O'Donnell publicly cleaned porta-potties and collected landfill garbage, the waste holding company lost two points, closing at 32.05. By the end of February, the company gained almost a point and a year later, its stock closed at 38.04. Meanwhile, competitor Casella Waste Systems (CWST) closed out February 2011 with 7.33 per share.
Less than two months after the October 2010 Frontier Airlines episode, Republic Airways Holdings, Inc. (RJET) stock hit a 52-week high at 9.58. In its quarterly statement, the company reported a 2% increase over the previous year's period and attributed the positive result to "higher unit revenues from the Company's Frontier operations."
The aforementioned Great Wolf Resorts saw record results after the viewing public watched the CBS-produced video brochure of the themed family resorts in October 2010. In its fourth quarter press release, the company boasted the highest full-year EBITDA in its history, selling nearly one million rooms and entertaining roughly four million guests. "Our repeat guests have remained loyal," said Schaefer, "and we continued to focus on attracting additional new guests with a refined sales and marketing effort." Indeed.
Ronald Croatti, president and CEO of UniFirst (UNF), was disguised as an aging, 60-something hippie in order to get a glimpse of how his underlings manufacture and launder his company's industrial uniforms. Less than a month after the episode's January 2011 air date, the company hit a 52-week high, closing at 57.59 and has since experienced a 2.47% return while its top competitor Cintas Corp (CTAS) took a -0.58% loss.
Sewer line clogs made their prime time debut with a particularly emotional look inside Chemed Corporation (CHE) subsidiary Roto-Rooter and COO and president Rick L. Arquilla. Of the undercover experience Arquilla said it was, "A little bit of self-discovery, self-revelation. It was a walk down memory lane to my childhood. I'm 57 years old, and I got to think about things I haven't thought about for 40 years. You go, 'Wow, that wasn't exactly on the radar screen going into this.'"
What probably didn't fall under the radar was the boost Chemed would get following the April 2010 episode, namely a 18.66% return over the past year and 26.49% in the last six months.
GSI Commerce (GSI) could stand to get a repeat appearance on the reality series. The billion dollar e-commerce company that handles marketing, customer service and online ordering for 500 companies including Dell (DELL), Polo Ralph Lauren (RL) and Expedia (EXPE) saw a nearly two-point share jump after its March 2010 episode and reached a 52-week high less than three months later. Perhaps the show's benefit has begun to peter out with the company's six month return at -20.63%.
As impressive as the Undercover Boss Effect may seem, it doesn't appear to have the power to conquer mother nature. Despite the 42 minutes of face time CBS provided Chiquita Brands (CQB) in October 2010, it simply wasn't enough to overcome the economic impact of banana supply shortages caused by adverse weather conditions in the fourth quarter.
Hopefully producers will be able to work out that glitch by season three.
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