Post on 26-Dec-2015
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?