healthcare sector analysis alexander bishop justin gibbs bethaditya winarno jie zhang
TRANSCRIPT
Healthcare Sector Analysis
Alexander BishopJustin Gibbs
Bethaditya WinarnoJie Zhang
Agenda Healthcare Sector Overview
Business Analysis
Economic Analysis
Financial Analysis
Valuation Analysis
Recommendations
Q&A
Healthcare overview
A category of stocks relating to medical and healthcare goods or services, the sector market capitalization is at $1.96 Trillion
Healthcare Industries
Company Name Industry Market Cap. ($ MIL)
JOHNSON & JOHNSON Pharmaceutical 174000.000
PFIZER Pharmaceutical 144000.000
MERCK & CO. Pharmaceutical 113000.000
ABBOTT LABORATORIES Pharmaceutical 83000.000
AMGEN Biotechnology 57000.000
MEDTRONIC HC-Equipment 47000.000
GILEAD SCIENCES Biotechnology 42000.000
BRISTOL-MYERS SQUIBB Pharmaceutical 41000.000
LILLY (ELI) Pharmaceutical 39000.000
UNITEDHEALTH GROUP HC-Managed Care 38000.000
Sector Leading Companies
SIM Holdings
Security Ticker %age Assets Eq shares outAmgen Inc. AMGN 2.65% 995.000
CareFusion Corp. CFN 0.88% 221.384
Gilead Sciences Inc. GILD 3.35% 899.925 Johnson & Johnson Co. JNJ 3.76% 2,759.100
Teva Pharmaceutical Industries Ltd. TEVA 3.64% 923.960
Sector Performance
YTD: -1.65% QTD: -1.65%
Top 5 Performers
Berkshire Hathaway Inc. 15.52%
Gilead Sciences Inc. 11.56%
NCR Corp. 7.55%
TCF Financial Corp. 7.49%
Amgen Inc. 3.38%
Business Analysis
Phase of Life Cycle
Aging of US population, 16% of US population will be 65+ older by 2020.
Key Driver: Demographic
Porter Five Forces Analysis
• Rivalry: Highly concentrated in large companies, competition between largest companies
• Supplier Power: Low• Substitutes: Generic drugs• Buyer Power: Low, buyers are individual
consumers• Barriers to enter: long & costly FDA approval (10
years on average), high R&D cost, R&D process is very difficult and tedious
Patent Expiration
• Patents grant exclusive rights for 20 years• Generic drug is a low cost substitute• Increasing use of generic drugs
• Substantial loss in market share
Economic Analysis
Positive trends
• Aging population and the baby boomers• People living longer with chronic disease • Obesity and diabetes epidemics • Technological advances • Global reach of disease • Personalized medicine
US Projected Population from 2010-2050
US Obesity Trend
No Data <10% 10%–14% 15%–19% 20%–24% 25%–29% ≥30%
Trends in National Health Expenditure
Healthcare Reform
• Could be beneficial to the industry because more people will be insured and able to seek out medical attention.
• With more people insured, the number of medical procedures performed should increase.
• The sector has been oversold out
Financial Analysis
EBITDA MARGIN
E B IT DA MAR G IN
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
2005 2006 2007 2008 2009
Healthc are
B iotec h
Dis tributors
P harma
E quipment
S + P 500
NET PROFIT MARGINNet P rofit Marg in
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
2005 2006 2007 2008 2009
Healthc are
B iotec h
Dis tributors
P harma
E quipment
S + P 500
RETURN ON EQUITYR eturn on E quity
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
2005 2006 2007 2008 2009
Healthc are
B iotec h
Dis tributors
E quipment
S + P 500
REVENUE GROWTH
R evenue Growth
0
2
4
6
8
10
12
14
2004-2005 2005-2006 2006-2007 2007-2008
Healthc are
S + P 500
EARNINGS PER SHARE
E P S
0
20
40
60
80
100
2005 2006 2007 2008 2009
Healthc are
S + P 500
CASH FLOW/ SHARE
C as h F low/ S hare- Healthc are
20
25
30
35
40
2005 2006 2007 2008 2009
C as h F low/ S hare- S +P
8090
100110120130140150160
2005 2006 2007 2008 2009
Valuation Analysis
Current Valuations
•Below the median in every category•Valuations will revert to the mean after restored market confidence•Not due to a change in industry fundamentals•Future drivers of Revenue look promising
•Demographics•Penetration in emerging markets•Healthcare expenditures up
Relative to S&P 500
Recommendations
Recommendations Add 38 basis points to increase current weight to150 basis points overweight
Reasons:1.Constant revenue growth, outperforming S&P5002.Short-term modest economic growth3.Healthcare reform4.Patent expiration
Questions?