•  Hao Lu Gilead Sciences Inc. (GILD)
•  Peter Lu McKesson Corporation (MCK)
•  Xue Lin Aetna Inc. (AET)
Teva Pharmaceutical Industries (TEVA)
Summary
Ticker
Expected
Recommended
Weight
Current Price Target Price Return Current Weight
Recommendation
GILD
$100.51
$123.94
23.30%
6.92%
7.02%
MCK
$194.80　$218.43
12.1%
N/A
TEVA
$57.24　$81.00
41.5%
6.08%
6.50%
AET
$83.81
$96.84　15.5%　6.65%
6.65%　N/A　BUY
BUY
BUY
HOLD　Gilead Sciences (GILD)
Overview
Company Overview •  Biopharmaceu,cal company with 6,100 employees •  Develops and commercializes drugs for HIV, liver diseases and oncology/inflamma,on Financial Summary 120 110 100 90 Enterprise Value: Trailing P/E: Forward P/E: PEG Ra,o: Price/Sales: Price/Book: Enterprise Value/Revenue: Enterprise Value/EBITDA: 160.30B 18.18 10.29 0.54 7.60 11.60 7.75 12.35 80 70 60 11/2013 02/2014 05/2014 08/2014 Gilead’s Market Share Gilead’s Market Current Posi=on Gilead’s HIV Drug Current Posi=on JNJ BMS GILD GSK AMGN GILD BIIB CELG ALXN UTHR GILD = 36.4% MDCO GILD = 61.7% Gilead’s Product Pipeline Compe=tors Market Cap: Employees: Qtrly Rev Growth (yoy): Revenue (Wm): Gross Margin (Wm): Gilead Sciences GlaxoSmithKline Pfizer Roche Holding AG $154.03B $109.84B $191.00B $251.14B 6,100 99,451 77,700 85,080 1.17 -­‐0.13 -­‐0.02 0.01 20.70B 37.78B 50.04B 50.52B 0.83 0.69 0.82 0.75 2014 Q3 Earnings (In thousands, except EPS)
Product Sales
Total Revenue
Net Income (GAAP)
Net Income (Non-GAAP)
Diluted EPS (GAAP)
Diluted EPS (Non-GAAP)
R&D Expenses (GAAP)
R&D Expenses (Non-GAAP)
Operating Margin (GAAP)
Operating Margin (Non-GAAP)
Three Months Ended September
30
2014
2013
$5,968,208
$2,709,652
$6,041,832
$2,782,833
$2,731,274
$788,606
$3,013,691
$879,081
$1.67
$0.47
$1.84
$0.52
$630,466
$546,244
$586,325
$488,535
57.6%
41.2%
62.6%
45.2%
Nine Months Ended September 30
2014
2013
$17,252,119
$7,760,505
$17,575,731
$8,081,862
$8,614,277
$2,283,397
$9,431,033
$2,520,749
$5.18
$1.35
$5.68
$1.49
$1,809,368
$1,567,778
$1,686,104
$1,436,282
62.2%
41.2%
67.2%
44.9%
Rela=ve Valua=on Multiples
Market Cap (Billion)
Industry
GILD Average
BIIB
CELG
AMGN
VTRX
ALXN
$83.35 $121.05
$26.85
$37.04
$151.53
$37.14
$71.42
EV/EBITDA
8.70
114.54
12.63
17.08
12.45
917.47
26.04
EV/MC
1.01
0.99
0.96
1.00
1.04
0.96
0.95
P/FCF
15.23
55.02
27.30
24.64
16.96
N/A
77.95
P/S
7.42
48.38
7.92
7.81
6.11
33.05
17.78
P/E
17.77
60.93
29.24
35.76
22.65
N/A
74.74
Mul=ple Valua=on Absolute
Valuation
Target
Current Multiple
Target/Current
Expectd EPS
Target Price
7.99
$117.01
P/E
18.10
19.80
1.09
P/B
11.36
13.15
1.16 $123.81
P/S
7.50
8.60
1.15 $122.65
20.83
22.95
1.10 $117.85
P/EBITDA
Price Range: $117.01 -­‐ $123.81 DCF Valua=on Recommenda=on: BUY •  Target price: $123.94, current price: $100.51 upside: 21.4%, 20 basis points increase •  The big picture of Healthcare reform – increasing demand •  Strong growth poten=al in HIV & HCV drug development and sales McKesson Corpora.on (MCK)
•  McKesson Corpora,on is an American based pharmaceu,cal distribu,on company at the retail level •  Pharmaceu,cal Retail, Medical Supplies and Health Informa,on Technology •  $161.2B in revenue: 15th highest in the United States •  C. Assets of $33.87B, C. Liabili,es of $41.70B •  Recommenda,on: Strong buy Current Standing Among Compe.tors
Companies
MCK
CAH
ABC
P/E
36.63
25.33
75.56
ROE
15.33%
17.35
13.28
P/S
0.3
0.29
0.17
Historical Revenue Comparison
Amerisource Bergen
$108,295.00 $111,677.00 Cardinal Health
$122,321.00 McKesson
$122,069.00 $137,609.00 $98,503.00 $102,644.00 $107,552.00 $101,093.00 $91,084.00 $76,496.00 $78,695.00 $78,080.00 $87,959.00 $-­‐ 2010
2011
2012
2013
2014
Mckesson (MCK)
Analyst: Peter Lu
9/30/2014
Terminal Discount Rate =
Terminal FCF Growth =
Year
2013
Revenue
122,069
% Grow th
2014
137,609
12.7%
Operating Income
1,928
Operating Margin
1.6%
Interest
-
Interest % of Sales
0.0%
Taxes
Tax Rate
Net Income
2,096
1.5%
0.0%
581
742
30.1%
35.4%
1,347
% Grow th
1,354
0.5%
Add Depreciation/Amort
% of Sales
Plus/(minus) Changes WC
2015E
177,301
28.8%
8,225
4.6%
0.0%
3,043
37.0%
2016E
184,619
4.1%
6,986
3.8%
0.0%
2,585
37.0%
5,182
4,401
282.7%
-15.1%
2017E
193,314
4.1%
7,365
3.8%
0.0%
2,725
37.0%
4,640
5.4%
567
666
786
774
821
0.5%
0.5%
0.4%
0.4%
0.4%
(104)
2018E
204,066
5.5%
5,918
2.9%
-
2019E
211,480
5.5%
6,302
3.0%
-
0.0%
2,190
37.0%
3,728
-19.6%
0
0.0%
2,332
37.0%
3,970
6.5%
0
0.0%
892
597
579
0.9%
0.5%
0.0%
0.0%
0.0%
0.0%
Subtract Cap Ex
(399)
(408)
(476)
(515)
(571)
(436)
(458)
Capex % of sales
-0.3%
-0.3%
-0.3%
-0.3%
-0.3%
-0.2%
-0.2%
Free Cash Flow
2,209
% Grow th
66.9%
NPV of Cash Flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
28,733
22,598
51,331
4.83%
Current P/E
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
34.0
38.1
28.6
30.8
Shares Outstanding
Current Price
Implied equity value/share
Upside/(Downside) to DCF
Debt
Cash
Cash/share
3,687
235.0
$
$
194.80
218.43
12.1%
29,337
3,804
16.19
7,336
99.0%
56%
44%
100%
6,287
-14.3%
6,611
5.2%
0
4,164
-37.0%
2020E
223,111
0
4,428
6.3%
2021E
235,383
5.5%
6,582
5.5%
6,944
3.0%
-
0.0%
-0.1%
% of Sales
1,259
12.5%
5.5%
3.0%
-
0.0%
2,435
4,147
37.0%
4,375
4.4%
0
5.5%
0
0.0%
0
0.0%
0
0.0%
0
0.0%
0
0.0%
4,147
0.0%
4,375
-6.4%
248,329
5.5%
7,326
3.0%
-
0.0%
2,569
37.0%
2022E
5.5%
2,711
37.0%
4,615
5.5%
0
0.0%
0
0.0%
0
0.0%
4,615
5.5%
Terminal Value
8.8
9.9
7.9
8.5
261,987
5.5%
7,729
3.0%
-
0.0%
Free Cash Yield
33.8
37.9
25.8
27.8
2023E
0.0%
2,860
37.0%
4,869
5.5%
0
0.0%
0
0.0%
0
0.0%
4,869
5.5%
73,383
6.64%
Terminal P/E
15.1
Terminal EV/EBITDA
12.8
Teva Pharmaceutical Industries
(TEVA)
Overview
Company Overview Teva Pharmaceutical Industries Limited, together with its subsidiaries,
develops, manufactures, sells, and distributes pharmaceutical products
worldwide. The company offers generic pharmaceutical products; and
basic chemicals, as well as specialized product families.
Founded: 1901 Headquartered: Petach Tikva, Israel.
•  Generic (products in a variety of dosage forms, including tablets, capsules,
ointments, creams, liquids, Injectable and inhalants),
•  Specialty(medicines for Central Nervous System and respiratory therapeutic
areas, oncology, women's health, and NTE activity)
•  OTC medicines (including the branded OTC medicines of TEVA and P&G, in
categories such as cough/cold and allergy, digestive wellness, vitamins, etc.)
. Financial Summary Profile Highlight 52 Week Price range 37.89 – 58.87 Market Cap 48,883.0M Share Outstanding 854.0M Dividend Yield 2.37% 12 Month Total Ret 54.81% Beta 0.82 Revenue 20.3B P/E 17.93 ROE 11.96% ROA 6.25% Employee 44,945 12 Month Price Trend TEVA Rela=ve Valua=on Company Name
Actavis Plc.
Ranbaxy Lab Ltd.
Mylan Inc.
Perrigo Co. Plc.
Average
Earning
Sales Revenue
Free Cash Flow
Market Cap
EBITA
Share Outstanding
Ticker
ACT
RBXY
MYL
PRGO
P/E
P/S
P/BV
EV/MC EV/EBITA
50.77
4.27
2.35
1.22
12.60
N/A
N/A
7.99
1.19
16.17
18.92
2.78
6.10
1.38
9.09
46.40
4.67 31.46
1.11
14.15
38.70
3.91 11.98
1.23
13.00
2,725.0
20,534.0
3,075.0
49,240.6
5,619.0
854.0
Price Based on
Earning
Sales Revenue
FCF
Market Cap
EBITA
Average
Price
123.48
93.93
43.12
70.63
85.55
83.34
TEVA DCF Analysis
Year
2012
Net Income
4,671
% Growth
Add Depreciation/Amort
% of Sales
Plus/(minus) Changes WC
% of Sales
Subtract Cap Ex
Capex % of sales
Free Cash Flow
% Growth
NPV of Cash Flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
Shares Outstanding
Current Price
Implied equity value/share
Upside/(Downside) to DCF
2823
13.9%
2861
14.1%
1,031
5.1%
3,602
$
$
39,319
30,582
69,901
7.37%
854
57.23
81.85
43.0%
Terminal Discount Rate =
Terminal FCF Growth =
2013 2014E
2015E 2016E
4,318
3,863
4,249
4,224
8.5%
1.5%
2017E
2018E
2019E
2020E
2021E
2022E
4,231
4,288
4,314
4,361
4,427
4,493
-7.6%
-10.5%
10.0%
-0.6%
0.2%
1.3%
0.6%
1.1%
1.5%
1.5%
2936
14.5%
-1712
-8.4%
1,018
5.0%
2,813
13.7%
(696)
-3.4%
1,006
4.9%
2,605
13.0%
(601)
-3.0%
1,102
5.5%
2,370
11.9%
(558)
-2.8%
1,215
6.1%
2,294
11.5%
(519)
-2.6%
1,297
6.5%
2,204
10.9%
(485)
-2.4%
1,415
7.0%
2,075
10.2%
(407)
-2.0%
1,526
7.5%
1,995
9.7%
(370)
-1.8%
1,645
8.0%
1,941
9.3%
(334)
-1.6%
1,774
8.5%
1,907
9.0%
(275)
-1.3%
1,907
9.0%
7,948
6,366
120.7%
-19.9%
56%
44%
100%
6,353
-0.2%
5,936
-6.6%
5,748
-3.2%
5,562
-3.2%
5,270
-5.3%
5,081
-3.6%
4,928
-3.0%
4,769
-3.2%
Terminal Value 69,146
Free Cash Yield
6.90%
Poten,als and Risk •  Synergies from past acquisi=ons and poten=al future acquisi=ons •  Dividend increase and repurchase plan •  Baby boomers will show strong demand in the long run. Risks •  Success depends on ability to develop and commercialize products •  Leading specialty medicine, Copaxone®, faces increasing compe==on •  R&D efforts invested in pipeline of specialty and other products may not achieve expected results. From the valua,on: BUY Covered by several bank, a misprice that much may be my mistake. Keep in mind the uncertainty of the future of the company Aetna Inc. (AET)
Overview
•  Founded in 1853, located in Hartford, Connecticut.
Description
•  The third largest healthcare benefits company in the United
States.
•  Aetna provides wide range of products and services including
traditional benefits like medical, dental, and vision benefit
plans as well as other customized specialty products.
•  The customer pool consists of individual, large to small sized
business employers, other health care providers,
governmental units and labor groups.
Peers Comparing
•  Lower-­‐than-­‐Average Price Ra=o Key Business Drivers
•  Obamacare increases the potential
market size
•  Longer life expectancy
•  Aging baby boomers generation
•  Cost inflation of medical expenditure
•  Growing economy
Historical Data Comparing Relative Valuation
Company Name
Cigna Corp.
UnitedHealth Group Inc.
Wellpoint Inc.
Humana Inc.
Average
Earning
Sales Revenue
Book Value
Market Cap
EBITA
Share Outstanding
2,184.2
56,414.7
14,982.4
30,372.8
4,911.3
351.7
Ticker
P/E
P/S
P/BV
EV/MC EV/EBITA
CI
14.34
0.81
2.41
1.07
7.20
UNH
17.81
0.74
2.85
1.10
8.12
WLP
14.85
0.49
1.40
0.81
4.68
HUM
22.25
17.31
0.46
0.63
2.06
2.18
0.70
0.92
5.69
6.42
Price Based on
Earning
Sales Revenue
FCF
Market Cap
EBITA
Average
Price
107.52
100.25
92.87
79.45
89.69
93.96
Decreasing WACC and Terminal
WACC
Sensitive Analysis
Conclusion
•  Recommend a HOLD on AET
•  Does not have high potential return as other stocks
in this sector in SIM portfolio
•  Slow growth decided by the industry is not enough to
offset the risks from government regulation and
intense market competition.
•  Potential cost raising will be a problem
Ques=on？