health care sector
DESCRIPTION
Health care sector. Suyang Yang Huiting Wang. Agenda. Sector Overview Business Analysis Financial Analysis Valuation Analysis Recommendation Q&A. Health Care Sector. Stocks relates to medical & healthcare goods or services Health Care Sector includes: Hospital management firms - PowerPoint PPT PresentationTRANSCRIPT
HEALTH CARE SECTOR
Suyang YangHuiting Wang
AGENDA
Sector Overview Business Analysis Financial Analysis Valuation Analysis Recommendation Q&A
HEALTH CARE SECTOR
Stocks relates to medical & healthcare goods or services
Health Care Sector includes: Hospital management firms Health maintenance organizations (HMOs) Biotechnology Medical products
SECTOR SIZE
Sector Number of Constituents Adjusted Market Cap. In $ Mil
Energy 40 1,127,143 Materials 30 309,561 Industrials 59 920,442
Consumer Discretionary 78 830,996 Consumer Staples 41 1,089,057
Health Care 53 1,153,936
Financials 79 1,337,608 Information Technology 76 1,737,657
Telecommunications Services 9 281,594 Utilities 35 336,174
SECTOR WEIGHT
S&P 500 SIM
SECTOR WEIGHTSector S&P 500 Weight SIM Weight Change
Energy 12.35% 12.80% 0.45%
Materials 3.39% 4.52% 1.13%
Industrials 10.09% 11.97% 1.88%Consumer Discretionary 9.11% 7.51% -1.60%
Consumer Staples 11.94% 12.23% 0.29%
Health Care 12.65% 13.13% 0.48%
Financials 14.66% 6.59% -8.07%Information Technology 19.04% 21.97% 2.93%
Telecom Services 3.09% 3.51% 0.42%
Utilities 3.68% 3.19% -0.49%
HEALTH CARE INDUSTRIES
HEALTH CARE INDUSTRY
Pharmaceutical is the KEY driver of the sector
Represent 51.7% of Health Care Sector & 6.6% of S&P 500
by Mkt. Cap
Industry develops, produces, and markets drugs licensed for
use as medications
Pharmaceutical Sales include:
Prescribed drugs
OTC medications
TOP HEALTH CARE COMPANIESCompany Ticker % of S&P500 Industry
Market Cap (In $ Bil)
Johnson & Johnson
JNJ 1.79% Pharmaceutical 163.9
Pfizer PFE 1.49% Pharmaceutical 136.7
Abbott Laboratories
ABT 0.86% Pharmaceutical 78.7
Merck & Co. MRK 0.72% Pharmaceutical 65.9
Amgen AMGN 0.58% Biotechnology 53.2
Teva Pharmaceutical Industries Ltd.
TEVA Pharmaceutical 47.1
Schering-Plough SGP 0.51% Pharmaceutical 46.4
Medtronic MDT 0.44%HealthCare-Equipment
40.0
Gilead Sciences GILD 0.42% Biotechnology 38.6
SIM HOLDINGS
JNJ & TEVA are two top holdings of SIM Portfolio
Company Ticker % of Asset IndustryMarket Cap
(In $ Bil)Cardinal Health
Inc.CAH 2.05% HC-Distributor 10.3
CareFusion Corp.
CFN 0.81% HC-Equipment 5.0
Gilead Sciences Inc.
GILD 3.12% Biotechnology 38.6
Johnson & Johnson Co.
JNJ 3.73% Pharmaceutical 163.9
Teva Pharmaceutical Industries Ltd.
TEVA 3.42% Pharmaceutical 47.1
BUSINESS ANALYSIS
Overall, Health Care sector is in Maturity stage of life cycle Pharmaceutical Industry(51.7%) is in the grey area between Growth
and Maturity Health Care-Equipment(14.52%) is in Maturity stage Biotechnology Industry(12.5%) is in Growth stage
5 FORCE
Generic DrugsSubstitutes
Concentrate on several large
companies: JNJ, PFE, MRK,ABT (40%)
Supplier Power
Low- Major supplier is chemical industry and have competitive suppliers
Barriers to Enter
High barriers to enter, due to huge demand for R&D
Costly Regulations Patent
Buyer Power
Low- no buyer has any particular influence on product or price
PATENT EXPIRATION & GENERIC DRUGS 20 YR Patent Length, 10 yr avg for FDA approval 2009-2014, expires @ the rate of 3 drugs/year Generic Drugs: cost-saving alternative
5 FORCE
Generic DrugsSubstitutes
Concentrate on several large
companies: JNJ, PFE, MRK,ABT (40%)
Supplier Power
Low- Major supplier is chemical industry and have competitive suppliers
Barriers to Enter
High barriers to enter, due to huge demand for R&D
Costly Regulations Patent
Buyer Power
Low- no buyer has major influence on product or price
FACTORS INFLUENCES HEALTH CARE SECTOR
DEMOGRAPHICS & BABY BOOMERS
Demographic trend shows that there is a very big potential market for Health Care Sector in the near future. Also, Baby boomers are getting older.
NATIONAL HEALTH EXPENDITURE
Health Expenditure is in an up trend, which indicate future market of Health Care Sector
EXCHANGE RATE
Euro/USD Ratio Chart
HEALTHCARE REFORM
Period of controversy (UNCERTAINTY) Worst-case scenario are priced in Sector is over-sold
16.0%-12.7%
21.0%-13.1%
FINANCIAL ANALYSIS-NPM
SPX: 8.0%
HCX: 10.0%
DRUGS: 22.0%
BIOTK: 30% for 3 years
FINANCIAL ANALYSIS-NPM
FINANCIAL ANALYSIS-ROE
HCX:24.1%SPX: 11.0%DRUGS: 28.5%BIOTK: 23.7%HCDIS: 17.0%HCEQP: 19.2%
FINANCIAL ANALYSIS-CF
Good job: BIOTK
Stable: DURGS
FINANCIAL ANALYSIS-EBITDA
Current 2009:
HCX: 16.9%
SPX: 17.4%
FINANCIAL ANALYSIS-Revenue Growth
HCX Revenue is increasing at average 9% for the past 5 years.
VALUATION ANALYSIS
VALUATION ANALYSIS-Sector fP/EAbsolute Price to Earnings Ratio
Price to Earnings Relative to S&P 500
High: 39.7Low: 10.0Median:
17.9Current
11.6
High: 1.6Low: 0.69
Median: 1.1Current
0.71
VALUATION ANALYSIS-Industry fP/EDrugs Price to Earnings Relative to S&P 500
Biotk Price to Earnings Relative to S&P 500
High: 1.1Low: 0.64
Median: 1.0Current
0.65
High: 3.2Low: 0.78
Median: 1.5Current
0.78
VALUATION ANALYSIS-Industry fP/EHcdis Price to Earnings Relative to S&P 500
Hceqp Price to Earnings Relative to S&P 500
High: 1.6Low: 0.65Median:
0.99Current
0.82
High: 1.8Low: 0.79
Median: 1.3Current
0.84
VALUATION ANALYSIS-Sector P/S
Absolute Price to Sales Ratio
Price to Sales Relative to S&P 500
High: 4.7Low: 1.0
Median: 2.0Current 1.2
High: 2.4Low: 1.1
Median: 1.3Current 1.1
VALUATION ANALYSIS-Industry P/SDrugs Price to Sales Relative to S&P 500
Biotk Price to Sales Relative to S&P 500
High: 3.9Low: 2.1
Median: 2.5Current 2.3
High: 10.5Low: 3.8
Median: 5.5Current 4.0
VALUATION ANALYSIS-Industry P/SHcdis Price to Sales Relative to S&P 500
Hceqp Price to Sales Relative to S&P 500
High: 0.4Low: 0.1
Median: 0.2Current 0.1
High: 3.6Low: 1.8
Median: 2.7Current 2.3
VALUATION ANALYSIS-Sector P/BAbsolute Price to Book Value Ratio
Price to Book Value Relative to S&P 500
High: 10.1Low: 2.2
Median: 4.2Current 2.9
High: 2.5Low: 1.2
Median: 1.4Current 1.4
VALUATION ANALYSIS-Industry P/BDrugs Price to Book Relative to S&P 500
Biotk Price to Book Relative to S&P 500
High: 3.3Low: 1.2
Median: 1.5Current 1.4
High: 4.9Low: 1.2
Median: 1.8Current 1.5
VALUATION ANALYSIS-Industry P/BHcdis Price to Book Relative to S&P 500
Hceqp Price to Book Relative to S&P 500
High: 1.5Low: 0.5
Median: 0.9Current 0.9
High: 2.6Low: 1.2
Median: 1.9Current 1.3
VALUATION ANALYSIS-Sector P/CFAbsolute Price to Cash Flows Ratio
Price to Cash Flow Relative to S&P 500
High: 163.1Low: 7.6Median:
14.4Current 9.4
High: 9.8Low: 0.9
Median: 1.3Current 0.9
VALUATION ANALYSIS-Industry P/CFDrugs Price to Cash Flow Relative to S&P 500
Biotk Price to Cash Flow Relative to S&P 500
High: 2.0Low: 0.8Median:
1.2Current
0.8
High: 3.8Low: 1.1
Median: 2.0Current 1.1
VALUATION ANALYSIS-Industry P/CFHcdis Price to Cash Flow Relative to S&P 500
Hceqp Price to Cash Flow Relative to S&P 500
High: 2.0Low: 0.7Median:
1.3Current
0.8
High: 2.0Low: 1.1
Median: 1.6Current 1.1
VALUATION ANALYSIS-Sector Summary
Absolute Basis High Low Median Current Difference Under/Over
P/Trailing E 19.6 9.9 17.8 12.0 (5.8) Under
P/Forward E 18.6 10.0 16.7 11.6 (5.1) Under
P/B 4.3 2.2 3.8 2.9 (0.9) Under
P/S 2.0 1.0 1.8 1.2 (0.6) Under
P/CF 15.5 7.6 13.3 9.4 (3.9) Under
Relative to SP500 High Low Median Current Difference Under/Over
P/Trailing E 1.2 0.7 1.1 0.7 (0.4) Under
P/Forward E 1.2 0.7 1.1 0.7 (0.4) Under
P/B 1.6 1.2 1.3 1.4 0.1 Over
P/S 1.6 1.1 1.2 1.1 (0.1) Under
P/CF 1.4 0.9 1.2 0.9 (0.3) Under
Recommendations
Current SIM Weight Current S&P 500 Weight
13.13% 12.65%
• Short Term: Increase 52 basis point bring the SIM
portfolio 100 basis point overweight relative to S&P 500.
• Long Term: Decrease weight when economy shows definite
signs of improvement due to the defensive nature of Health Care
sector.
Questions?
Thank You!