Healthcare Sector Analysis Alexander Bishop Justin Gibbs Bethaditya Winarno Jie Zhang Agenda Healthcare Sector Overview Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recommendations Q&A.
Download ReportTranscript Healthcare Sector Analysis Alexander Bishop Justin Gibbs Bethaditya Winarno Jie Zhang Agenda Healthcare Sector Overview Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recommendations Q&A.
Healthcare Sector Analysis Alexander Bishop Justin Gibbs Bethaditya Winarno Jie 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 $1.96 Trillion Healthcare Industries Sector Leading Companies Company Name Industry Market Cap. ($ 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 SIM Holdings Security Amgen Inc. Ticker AMGN CareFusion Corp. Gilead Sciences Inc. Johnson & Johnson Co. Teva Pharmaceutical Industries Ltd. %age Assets 2.65% Eq shares out 995.000 CFN 0.88% 221.384 GILD 3.35% 899.925 JNJ 3.76% 2,759.100 TEVA 3.64% 923.960 S&P 500 Weight Consumer Discretionary 3.72% 3.41% 2.98% Consumer Staples 9.67% Energy Financials 11.65% 18.80% Health Care Industrials 11.38% Information Technology Materials 10.51% Telecommunication Services 14.71% 13.17% Utilities Cash Dividend Receivables 2.32% SIM Weight 0.08% 3.27% 2.94% 3.46% 6.99% Consumer Discretionary 11.96% Consumer Staples Energy Financials Health Care 19.04% 11.90% Industrials Information Technology Materials Telecommunication Services 11.37% 12.36% Utilities Cash Dividend Receivables 14.30% Sector Performance 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% YTD: -1.65% QTD: -1.65% Business Analysis Phase of Life Cycle Key Driver: Demographic Older Population by Age: 1900-2050 - Percent 60+, Percent 65+, and 85+ 30% 25% 20% 15% 10% % 60+ % 65+ 5% 0% 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 Aging of US population, 16% of US population will be 65+ older by 2020. 2040 2050 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 450,000 400,000 Projected Population 350,000 300,000 2000 250,000 2010 2020 200,000 2030 2050 150,000 2040 100,000 50,000 0 ..TOTAL ..0-4 ..5-19 ..20-44 Age Range ..45-64 ..65-84 ..85+ No Data <10% 10%–14% 15%–19% 20%–24% US Obesity Trend 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 60.0% Healthc are 50.0% B iotec h 40.0% Dis tributors 30.0% P harma 20.0% E quipment 10.0% S + P 500 0.0% 2005 2006 2007 2008 2009 NET PROFIT MARGIN Net P rofit Marg in 35.0% Healthc are 30.0% B iotec h 25.0% Dis tributors 20.0% P harma 15.0% E quipment 10.0% S + P 500 5.0% 0.0% 2005 2006 2007 2008 2009 RETURN ON EQUITY R eturn on E quity 35.0% Healthc are 30.0% 25.0% B iotec h 20.0% Dis tributors 15.0% E quipment 10.0% S + P 500 5.0% 0.0% 2005 2006 2007 2008 2009 REVENUE GROWTH R evenue G rowth 14 12 10 Healthc are 8 S + P 500 6 4 2 0 2004-2005 2005-2006 2006-2007 2007-2008 EARNINGS PER SHARE E PS 100 80 60 Healthc are 40 S + P 500 20 0 2005 2006 2007 2008 2009 C as h F low/ S hare- S +P CASH FLOW/ SHARE 160 150 140 130 120 110 100 90 80 2005 C as h F low/ S hare- Healthc are 40 35 30 25 20 2005 2006 2007 2008 2009 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 to 150 basis points overweight Reasons: 1.Constant revenue growth, outperforming S&P500 2.Short-term modest economic growth 3.Healthcare reform 4.Patent expiration Questions?