healthcare sector portfolio comparison wi12.pdf · healthcare sector portfolio comparison consumer...

HEALTHCARE SECTOR PORTFOLIO COMPARISON

Consumer Discretionary

11% Consumer Staples

11%

Energy12%

Financials14%Health Care

12%

Industrials11%

Information Technology

19%

Materials4%

Telecom3%

Utilities3%

S&P500 WeightConsumer

Discretionary8% Consumer

Staples12%

Energy11%

Financials13%

Health Care14%

Industrials10%

Information Technology

22%

Materials3%

Telecom4%

Utilities3%

SIM Weight

Overview Business Analysis

Economic Analysis

Financial Analysis Valuation Conclusion

HEALTHCARE SECTOR

Market Cap 41874.5P/E 20.92ROE 16.05%Dividend Yield 3.72%LT D/E 70.38%P/B 17.58%Net Profit Margin 15.85%P/FCF -60.23%% of S&P500 12%


Economic Analysis


HEALTHCARE SECTOR INDUSTRIESBiotechnologyDiagnostic SubstancesDrug DeliveryDrug Manufacturers - MajorDrug Manufacturers - OtherDrug Related ProductsDrugs - GenericHealth Care PlansHome Health CareHospitalsLong-Term Care FacilitiesMedical Appliances & EquipmentMedical Instruments & SuppliesMedical Laboratories & ResearchMedical PractitionersSpecialized Health Services

87%


Economic Analysis


LARGEST COMPANIES IN HEALTHCARE


Economic Analysis


HEALTHCARE SECTOR PERFORMANCEReturns P/E (fwd) P/B

Margin (EBITDA)

1Yr 12.5% Monthly High 17.9 4.1 16.96mo 14.1% Monthly Low 10.0 2.2 16.3QTD 2.7% Current 12.1 2.6 16.5

P/E (trailing) P/B


Economic Analysis


PORTER’S 5 FORCES

•FDA Approvals pose Barrier to Entry and Early Visibility of New Competitors.

Threat of New Competition

•Use of Generic medication is rising.•Numerous patents are expiring.

Threat of Substitutes

•Age Demographics are Growing•Political Forces are Targeting Heath-care.

Bargaining Power of Customers

•Specialized Ingredients with Few Substitutes•Often only one use for the raw materials.

Bargaining Power of Suppliers

•Numerous companies bloomed in this sector.•Fierce competition for new medications.

Intensity of Competitive Rivalry


Economic Analysis


EXTERNAL FACTORS

• Average age of Patients are Increasing.

• Patents• Patent Rights Uncertainty – Many of the companies in this sector have

large revenue streams from patented medications. To minimize healthcare costs, early termination of patents has been discussed as a viable option to reduce healthcare costs.

• Common / Preferred Generics - As soon as a patent expires, a low-cost provider readily supplies an alternative causing rapid drops in revenue.

• Regulatory Pressure • Healthcare is a hot political topic . As the demographics grow the need

for low cost healthcare is fueling market adjustments.• FDA – New pharmaceuticals must be clinically tested and approved. This

process is becoming more stringent.


Economic Analysis


PATENT EXPIRATIONSOriginating Company Pharmaceutical Expiration

Pfizer Viagra 3/27/12GlaxoSmithKline Cialis 11/21/17Eli Lilly Cymbalta 6/11/13 Sepracor Lunesta 2/14/14Pfizer Detrol 3/25/12Sepracor Xopenex 3/25/13Sankyo Benicar 4/25/16Abbott Zemplar 4/17/12GlaxoSmithKline Lotronex 1/13/13Merck Singulair 2/3/12Amgen Enbrel 10/23/13Johnson & Johnson Cypher 11/06/13


Economic Analysis


PHARMACEUTICALS PENDING FDA APPROVAL


Economic Analysis


• All companies mention significant product development pipelines.

• Phase 3 or Later• JNJ – 16 Pending Registration• Amgen – 10 Pending Registration• Pfizer – 14 Pending Registration

• Phase 1&2, ~45 per company.

• Annual Reports Show strong investments in R&D with Promising data

HEALTHCARE SECTOR LIFECYCLE

Healthcare Sector


Economic Analysis


US POPULATION PROJECTIONS - AGE

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

2010 2015 2020 2025 2030 2035 2040 2045 2050

.100 years and over

.85 years and over

.65 years and over

.45 to 64 years

Data from US Census

Bureau


Economic Analysis


REAL GDP AND HEALTHCARE SECTOR


Economic Analysis


CONSUMER FOOD SPEND AND HEALTHCARE


Economic Analysis


EARNINGS OUTLOOK


Economic Analysis

FinancialAnalysis Valuation Conclusion

HEALTHCARE SECTOR P/E + PROJECTION


Economic Analysis


MARGINS & CASH


Economic Analysis


SECTOR LEADERS & FINANCESIndustry Market Cap PEG

Ratio P/B Profit Margin

Operating Margin

Johnson & Johnson (JNJ) DM - Major 176.23B 2.15 2.88 14.87% 24.84%

Novartis AG (NVS) DM - Major 134.51B 2.48 2.06 15.35% 21.49%

Pfizer (PFE) DM - Major 161.81B 3.27 1.81 14.85% 29.32%

GlaxoSmithKline (GSK) DM - Major 134.51B 2.48 2.06 15.35% 21.49%

Merck & Company (MRK) DM - Major 115.55B 2.77 2.11 13.05% 20.77%

Sanofi – Aventis (SNY) DM - Major 99.94B 6.56 1.44 14.49% 20.89%

Abbott Laboratories (ABT) DM - Major 85.85B 1.30 3.50 12.17% 20.40%

AstraZeneca (AZN) DM - Major 60.93B 4.35 2.64 29.72% 38.78%

Novo Nordisk (NVO) DM - Other 75.00B 1.71 11.28 25.77% 33.72%

Amgen (AMGN) Biotechnology 52.62B 1.26 2.8 23.64% 33.96%


Economic Analysis


HEALTHCARE SECTOR VALUATION

Absolute Basis High Low Median Current Median -Current

P/Trailing E 28.4 9.9 18.2 12.4 5.8P/Forward E 25.6 10.0 17.2 12.0 5.2

P/B 7.5 2.2 3.8 2.6 1.2P/S 3.1 1.0 1.8 1.2 0.6

P/CF 22.2 7.6 13.4 9.2 4.2

Relative to SP500 High Low Median Current Median -

CurrentP/Trailing E 1.2 0.68 1.0 0.94 0.06P/Forward E 1.2 0.69 1.0 0.92 0.08P/B 2.4 1.1 1.4 1.20 0.20P/S 2.1 0.9 1.2 1.00 0.20P/CF 1.7 0.9 1.3 1.00 0.30

Overall, Healthcare looks cheap compared to historical values.

We believe this is due to . . . Uncertainty surrounding regulations and increasing demands for low-cost healthcare from a growing demographic.


Economic Analysis


INDUSTRY VARIATION

Industry variation is low with exception of the Diagnostic Substances and Medical Laboratories & Research industries.

Recall Pharmaceuticals Dominates the Sector, its P/E is at the Mean.

Industry Market Cap P/E ROE % D/E P/B Margin P/FCFMedical Practitioners 3.31B 7.6 12.7 5.92 45.04 5.6 4.3Hospitals 319.8B 10.0 144.0 76.39 -2.49 4.3 489.9Diagnostic Substances 11.94B 179.6 2.5 36.47 4.99 2.7 134.7Medical Laboratories & Research 131.43B 202.8 1.5 75.61 -9.45 0.8 -40.6


Economic Analysis


TECHNICAL ANALYSIS: HEALTHCARE SECTOR• Healthcare saw massive growth after

the surge of the pharmaceutical industry.

• Currently the industry is more mature, has reached a sustained growth rate.

• We foresee consolidation through mergers and acquisitions in the future.

• In the long term, other industries within the Healthcare Sector will grow, displacing Pharmaceuticals as they do.


Economic Analysis


HEALTHCARE SECTOR RECOMMENDATIONRecommendation – Reduce Healthcare Sector by 200 BP to S&P Weighting.

Current Weights: S&P -12%, SIM-14%


Economic Analysis


Positives

•Big Problems Left•Cancer•Alzheimer's

•Life Expectancy and Age Demographics are Growing

Risks

•Legislation•Patents / Generics•Medicaid / Medicare

•Don’t Expect Large Sector Growth

Industries to Overweight

•Generics•Hospitals•Medical Practitioners

Industries to Underweight

•Diagnostic Substances•Medical Laboratories & Research

healthcare sector portfolio comparison wi12.pdf · healthcare sector portfolio comparison consumer...

Documents