Healthcare Gilead Sciences Inc. (GILD) Teva Pharmaceutical Industries Limited (TEVA) Aetna Inc. (AET) McKesson Corporation (MCK) Recommendation Stock Industry Current Price Target Price Buy/Sell/Hold GILD Biotechnology 80.23 99.00 Hold TEVA Biotechnology & 49.11 Pharmaceutical 52.00 Buy AET Healthcare – Service 75.71 82.00 Hold MCK Drugs Wholesale 174.62 215.00 Buy Gilead Sciences Inc. Current price: $80.23 Target price: $99.19 HOLD Company Overview Biopharmaceutical company Discovers, develops, and commercializes medicines North America, South America, Europe, and the Asia-Pacific Biotechnology V.S. S&P 500 S&P 500 - Biotechnology (Industry) Index BIO = 2.02821470505446 * SPX - 0.839585505051155 Regression Statistics Multiple R 0.924348418 R Square 0.854419998 Adjusted R Square 0.854304183 Standard Error 0.273107832 Observations 1259 ANOVA df Regression Residual Total Intercept SPX 1 1257 1258 SS 550.2667504 93.75697492 644.0237253 MS F Significance F 550.2667504 7377.427714 0 0.074587888 Coefficients Standard Error t Stat -0.839585505 0.01857979 -45.18810432 2.028214705 0.023613559 85.89195372 P-value 1.2246E-265 0 Lower 95% Upper 95% Lower 95.0% Upper 95.0% -0.876036323 -0.803134687 -0.876036323 -0.803134687 1.981888373 2.074541037 1.981888373 2.074541037 Gilead V.S. S&P500 GILD = 2.12624988290246 * SPX - 1.08994153017624 Regression Statistics Multiple R 0.863781253 R Square 0.746118053 Adjusted R Square 0.745916078 Standard Error 0.404605246 Observations 1259 ANOVA df Regression Residual Total Intercept SPX 1 1257 1258 SS 604.7474178 205.7776938 810.5251117 MS F Significance F 604.7474178 3694.120048 0 0.163705405 Coefficients Standard Error t Stat -1.08994153 0.027525687 -39.59725102 2.126249883 0.034983141 60.77927318 P-value 2.8343E-223 0 Lower 95% Upper 95% Lower 95.0% Upper 95.0% -1.143942882 -1.035940178 -1.143942882 -1.035940178 2.057618102 2.194881664 2.057618102 2.194881664 GILD, BIO, HCX and S&P 500 350.00% 300.00% 250.00% 200.00% 150.00% 100.00% 50.00% 0.00% -50.00% -100.00% Gilead Sciences Inc. (NasdaqGS:GILD) - Share Pricing S&P 500 Index (^SPX) - Index Value S&P 500 Sector Indices - Health Care Sector Index (^HCX) - Index Value S&P 500 - Biotechnology (Industry) Index - Index Value Company key financials Comparable valuation Biogen Inc. Celgene Corp Amgen Inc. Alexion Lexion Pharmaceuticals Inc. United Therapeutics Corp Regeneron Pharmaceuticals Relative valuation: $99.45 Ticker BIIB US Equity CELG US Equity AMGN US Equity ALXN US Equity UTHR US Equity REGN US Equity Average GILD EPS EBITDA Sales FCF Market Cap Curr Shares Out EV Price average price Name P/E Ratio (TTM) EV/EBITDA (TTM) EV/Sales (TTM) P/FCF BIOGEN IDEC INC 43.82 26.39 11.50 CELGENE CORP 34.90 27.77 10.07 AMGEN INC 17.35 15.17 5.81 ALEXION PHARMACEUTICALS INC 121.84 54.66 21.30 UNITED THERAPEUTICS CORP 31.51 13.28 3.85 REGENERON PHARMACEUTICALS 91.33 42.34 16.12 Average 56.79 29.94 11.44 EV/Market Cap 38.67 0.98 32.36 0.99 17.07 1.15 72.77 0.95 13.16 0.84 79.76 0.98 42.30 0.98 $2.01 $4,868,703,000.00 $17,041,269,493.48 $2,914,206,016.00 $127,890,193,444.67 1538252928 (based on avg P/E) (based on avg EV/EBITDA) (based on avg EV/Sales) (based on avg P/FCF) (based on avg EV/Market Cap) $145,744,866,683.25 $194,965,385,922.14 $123,268,857,564.63 $125,350,706,180.64 $114.15 $94.75 $126.74 $80.14 $81.49 $99.45 DCF Model Valuation: $98.92 Terminal Discount Rate / WACC Gilead (GILD) Analyst: Le Zhao 3/7/2014 9.8% Year Revenue 2014E 16,176 % Grow th Terminal FCF Growth Operating Income Operating Margin Interest Interest % of Sales 2% Taxes Tax Rate Net Income % of Sales Cost of capital 8,802 54.41% Equity 5.50% 1.70% 0.09% Preferred WACC 0% 9.83% 0% 0.00% 2.0% 2016E 24,580 16.4% 15,389 2017E 25,885 5.3% 16,638 59.7% 62.6% 64.3% 440 630 769 832 2.72% 5.0% 5.0% 5.0% 2,274 28.00% 5,861 3,466 28.0% 8,885 51.6% 337 370 4,405 28.0% 11,052 24.4% 407 4,993 28.0% 11,845 7.2% 448 2018E 27,259 5.3% 17,521 64.3% 1,363 5.0% 4,837 28.0% 12,437 5.0% 472 2019E 28,706 5.3% 18,451 64.3% 1,435 5.0% 5,079 28.0% 13,059 5.0% 497 2020E 30,231 5.3% 19,431 64.3% 1,512 5.0% 5,333 28.0% 13,712 5.0% 523 2021E 31,836 5.3% 20,463 64.3% 1,592 5.0% 5,599 28.0% 14,398 5.0% 551 2022E 33,526 5.3% 21,549 64.3% 1,676 5.0% 5,879 28.0% 15,118 5.0% 580 2023E 35,306 5.3% 22,694 64.3% 1,765 5.0% 6,173 28.0% 15,874 5.0% 611 2024E 37,181 5.3% 23,899 64.3% 1,859 5.0% 6,482 28.0% 16,667 5.0% 644 2.1% 1.8% 1.7% 1.7% 1.7% 1.7% 1.7% 1.7% 1.7% 1.7% 1.7% (1,163) (1,068) (690) (727) (765) (806) (849) (894) (941) (991) -9.0% -5.5% -4.3% -2.7% -2.7% -2.7% -2.7% -2.7% -2.7% -2.7% -2.7% Subtract Cap Ex (200) (204) (208) (198) (208) (219) (231) (243) (256) (270) (284) Capex % of sales 1.2% 1.0% 0.8% 0.8% 0.8% 0.8% 0.8% 0.8% 0.8% 0.8% % of Sales Debt 12,598 9.8% Terminal FCF Growth = (1,453) Plus/(minus) Changes WC Weight Cost Weight*Cost 94.50% 10.30% 9.73% 21,110 30.5% % Grow th Add Depreciation/Amort 2015E Terminal Discount Rate = Free Cash Flow 4,545 % Grow th NPV of Cash Flows NPV of terminal value Projected Equity Value Free Cash Flow Yield Current P/E Projected P/E Current EV/EBITDA Projected EV/EBITDA Shares Outstanding 7,888 73.5% 72,215 81,846 154,061 3.68% 21.1 26.0 13.7 16.9 1,538.3 Current Price Implied equity value/share Upside/(Downside) to DCF $80.23 $98.92 23.3% Debt Cash Cash/share 4,003 2,113 1.37 10,183 29.1% 47% 53% 100% 11,405 12.0% 11,974 5.0% 12,572 5.0% 13,199 5.0% 13,857 5.0% 14,548 5.0% 15,274 5.0% 5.0% Terminal Value 208,973 Free Cash Yield 13.9 17.1 9.7 11.9 0.8% 16,036 11.2 13.8 7.9 9.8 7.67% Terminal P/E 12.5 Terminal EV/EBITDA 8.6 Sensitivity Analysis Terminal FCF Growth Terminal Discount Rate $98.92 9.0% 9.2% 1.0% 103.49 100.61 9.4% 97.87 9.6% 9.8% 10.0% 10.2% 10.4% 10.6% 95.25 92.76 90.38 88.11 85.93 83.85 1.5% 107.49 104.35 101.37 98.53 95.84 93.27 90.82 88.49 86.26 2.0% 112.06 108.61 105.34 102.24 99.31 96.52 93.87 91.35 88.95 2.5% 117.34 113.50 109.89 106.48 103.26 100.21 97.32 94.57 91.97 3.0% 123.49 119.18 115.15 111.35 107.78 104.42 101.24 98.23 95.39 Target Price: $99.00 Comparable valuation range DCF model valuation range DCF model valuation range (most likely scenario) Best guess (comparable valuation & DCF valuation) Lower $80.14 $83.85 $90.82 $98.92 Higher $126.74 $123.49 $109.89 $99.45 TEVA Pharmaceutical Industries Ltd. Current price: $49.11 Target price: $52.00 BUY TEVA Overview TEVA Pharmaceutical Industries is a pharmaceutical company. Business includes three primary areas: Generic (products in a variety of dosage forms, including tablets, capsules, ointments, creams, liquids, injectables 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.) TEVA Key Stats Key Stat Current Price(as of 03/20/2014) 49.83 52wk Range: 36.26 - 51.41 1y Rt: 28.56% Beta: 0.93 Volume: 6.2M Avg Vol (3m): 6.8M Market Cap: 42.26B Current P/E: Estimated P/E (12/2014): 11.01 P/E (ttm): 33.44 Est. EPS 4.527 Div & Yield: 1.17 (2.40%) TEVA Segments Segment Revenues Year ended Dec 31, 2013 Generic Medicines United States Europe Rest of the world Specialty Medicines United States Europe Rest of the world Other Revenues United States Europe Rest of the world Total Revenues In Million $ 9,906 4,181 3,485 2,240 8,402 6,026 1,706 670 2,006 254 797 955 20,314 Product Line % 49% 41% 10% 100% Geographic Area % 100% 42% 35% 23% 100% 72% 20% 8% 100% 13% 40% 48% TEVA Competitors Direct competitors Actavis Ranbaxy Laboratories Limited Biotechnology companies: Amgen Inc. (AMGN) Gilead Sciences Inc. (GILD) Generic Drugmakers Mylan, Inc. (MYL) Pfizer Inc. (PFE) TEVA Product Line Performance Product Lines Generic Profit 2013 +/- Factors Postive Negative Lower Higher -3.2% Selling&Marketing Research&Develop Expense ment Expense Specialty 20% Copaxone®, Azilect® OTC medicines 24% Commercial, Price Increase Higher S&M, R&D Copaxone® Accounts for 51.5% of Specialty Revenue in 2013 Relies heavily on: successful introduction of a three-times-a-week product (approved by FDA in January 2014) migration of a substantial percentage of current daily Copaxone® patients to this new version (50% est. in 2014) TEVA - Potentials Catalysts Risks Leading Specialty medicine, Success depends on ability to develop and commercialize Copaxone® products Synergies from past Leading specialty medicine, acquisitions and potential Copaxone®, faces increasing future acquisitions competition Dividend increase and Subject to material fines, penalties repurchase plan and other adverse consequences Baby boomers will show arising out of ongoing investigations strong demand in the long R&D efforts invested in pipeline of run. specialty and other products may not achieve expected results. TEVA vs. SP500 - 5yr April 2011 - trial of Laquinimod TEVA vs. SP500 - 1yr Jan 15th, 2014 – CFO signal acquisitions Feb 16th, 2014 – Soros Management Fund LLC boosted stake TEVA Ratio Profit Margin (ttm): Operating Margin (ttm): ROA (ttm): ROE (ttm): Total Debt/Equity: Current Ratio: Dividend Yield: Payout Ratio: 6.25% 19.54% 5.06% 5.51% 53.86 1.15 2.40% 73.00% TEVA Relative Valuation Absolute Valuation Current 49.83 Price Date 3/20/14 TEVA P/E P/S P/B Current Multiple 11.0 2.1 1.9 Peers Target Target Multiple Price 13.3 11.5 52.00 10.5 2.2 52.20 10.3 2.0 52.73 average 52.31 ACT MYL PRGO RBXY GILD 14.8 13.7 4.4 2.9 4.0 6.7 RV Result :$52.31 Price Range: $52.00 – $52.73 20.4 5.9 2.6 14.5 1.4 4.2 % chg from Current price 4.4% 4.8% 5.8% 5.0% TEVA – DCF Assumption I/S Forecast Assumptions Sales & Chg Gross Margin R&D Selling and Market expenses General and administrative expenses Restructuring Charges & Goodwill Impairment Tax Rate 2016 2015 2014 -0.20% -1.20% -1.60% 56.50% 56.70% 57.00% 7.15% 7.10% 7.05% 18.74% 18.74% 18.74% 6.00% 6.00% 6.00% 5.71% 5.71% 5.71% 1.70% 1.71% 1.72% TEVA DCF Model Terminal Discount Rate = Terminal FCF Growth = Terminal Growth Rate Implied PE 0.00% 0.25% 0.50% 0.75% 1.00% 1.25% 1.50% 1.75% 2.00% 2.25% 2.50% 2.75% 3.00% 3.25% 3.50% 3.75% 4.00% 4.25% 4.50% 4.75% 5.00% 5.25% 5.50% 5.75% 6.00% 9.00% 9.25% 9.50% 9.75% 10.00% 10.25% 11.1 10.8 10.5 10.3 10.0 9.8 11.5 11.1 10.8 10.6 10.3 10.0 11.8 11.5 11.2 10.9 10.6 10.3 12.2 11.9 11.5 11.2 10.9 10.6 12.6 12.2 11.9 11.5 11.2 10.9 13.1 12.7 12.3 11.9 11.6 11.3 13.5 13.1 12.7 12.3 11.9 11.6 14.0 13.6 13.1 12.7 12.3 12.0 14.6 14.1 13.6 13.2 12.8 12.4 15.1 14.6 14.1 13.6 13.2 12.8 15.8 15.2 14.6 14.1 13.7 13.2 16.4 15.8 15.2 14.7 14.2 13.7 17.2 16.5 15.8 15.3 14.7 14.2 18.0 17.2 16.5 15.9 15.3 14.8 18.8 18.0 17.3 16.6 15.9 15.3 19.8 18.9 18.0 17.3 16.6 16.0 20.8 19.8 18.9 18.1 17.3 16.6 21.9 20.9 19.9 19.0 18.1 17.4 23.2 22.0 20.9 19.9 19.0 18.2 24.6 23.3 22.1 21.0 20.0 19.0 26.3 24.7 23.3 22.1 21.0 20.0 28.1 26.3 24.8 23.4 22.2 21.1 30.1 28.1 26.4 24.8 23.4 22.2 32.5 30.2 28.2 26.4 24.9 23.5 35.3 32.6 30.3 28.3 26.5 24.9 9.5% 2.0% Discount Rate 10.50% 10.75% 11.00% 11.25% 11.50% 11.75% 12.00% 9.5 9.3 9.1 8.9 8.7 8.5 8.3 9.8 9.5 9.3 9.1 8.9 8.7 8.5 10.1 9.8 9.6 9.3 9.1 8.9 8.7 10.3 10.1 9.8 9.6 9.4 9.2 9.0 10.6 10.4 10.1 9.9 9.6 9.4 9.2 10.9 10.7 10.4 10.1 9.9 9.6 9.4 11.3 11.0 10.7 10.4 10.2 9.9 9.7 11.6 11.3 11.0 10.7 10.4 10.2 9.9 12.0 11.7 11.3 11.0 10.7 10.5 10.2 12.4 12.0 11.7 11.4 11.1 10.8 10.5 12.8 12.4 12.1 11.7 11.4 11.1 10.8 13.3 12.8 12.5 12.1 11.7 11.4 11.1 13.7 13.3 12.9 12.5 12.1 11.8 11.4 14.2 13.8 13.3 12.9 12.5 12.1 11.8 14.8 14.3 13.8 13.4 12.9 12.5 12.2 15.4 14.8 14.3 13.8 13.4 13.0 12.6 16.0 15.4 14.9 14.3 13.9 13.4 13.0 16.7 16.0 15.4 14.9 14.4 13.9 13.5 17.4 16.7 16.1 15.5 14.9 14.4 13.9 18.2 17.5 16.8 16.1 15.5 15.0 14.4 19.1 18.3 17.5 16.8 16.2 15.6 15.0 20.0 19.1 18.3 17.5 16.8 16.2 15.6 21.1 20.1 19.2 18.3 17.6 16.9 16.2 22.3 21.2 20.1 19.2 18.4 17.6 16.9 23.6 22.3 21.2 20.2 19.3 18.4 17.7 TEVA DCF Model Current Price (As of 03/25/2014) $49.11 Implied equity value/share $52.03 Upside/(Downside) to DCF 5.9% DCF Result :$52.03 Terminal Growth Rate TEVA Sensitivity Analysis $52.03 0.00% 0.25% 0.50% 0.75% 1.00% 1.25% 1.50% 1.75% 2.00% 2.25% 2.50% 2.75% 3.00% 3.25% 3.50% 3.75% 4.00% 4.25% 4.50% 4.75% 5.00% 5.25% 5.50% 5.75% 6.00% 9.00% 49.10 49.75 50.44 51.18 51.95 52.78 53.66 54.61 55.62 56.70 57.87 59.14 60.51 61.99 63.62 65.39 67.35 69.51 71.91 74.59 77.61 81.03 84.94 89.45 94.72 10.00 9.25% 9.50% 9.75% % 47.77 46.50 45.30 44.16 48.37 47.06 45.82 44.65 49.01 47.65 46.37 45.16 49.68 48.28 46.95 45.70 50.40 48.94 47.56 46.26 51.16 49.64 48.21 46.86 51.97 50.39 48.90 47.50 52.84 51.18 49.63 48.17 53.76 52.03 50.41 48.89 54.75 52.94 51.24 49.65 55.82 53.91 52.13 50.46 56.96 54.95 53.08 51.33 58.20 56.07 54.10 52.26 59.54 57.28 55.20 53.27 61.00 58.60 56.39 54.34 62.59 60.02 57.67 55.51 64.33 61.58 59.07 56.77 66.24 63.29 60.60 58.14 68.36 65.16 62.27 59.63 70.71 67.24 64.10 61.27 73.34 69.54 66.14 63.07 76.30 72.11 68.39 65.06 79.65 75.01 70.92 67.27 83.48 78.29 73.75 69.74 87.90 82.05 76.97 72.52 Discount Rate 10.25 10.50 10.75 % % % 43.08 42.05 41.06 43.53 42.47 41.46 44.00 42.91 41.87 44.50 43.38 42.30 45.03 43.87 42.76 45.59 44.38 43.24 46.18 44.93 43.74 46.80 45.50 44.28 47.46 46.11 44.84 48.16 46.76 45.44 48.91 47.45 46.07 49.70 48.18 46.75 50.56 48.96 47.47 51.47 49.79 48.23 52.45 50.69 49.05 53.50 51.65 49.92 54.64 52.68 50.87 55.88 53.80 51.88 57.22 55.01 52.97 58.69 56.33 54.16 60.29 57.76 55.45 62.05 59.33 56.85 64.00 61.06 58.39 66.17 62.97 60.09 68.59 65.09 61.96 Price Range: $47.50 –$57.87 11.00 % 40.12 40.49 40.88 41.28 41.71 42.15 42.62 43.12 43.64 44.20 44.78 45.40 46.06 46.77 47.52 48.32 49.18 50.10 51.09 52.16 53.32 54.59 55.97 57.47 59.13 11.25 % 39.22 39.57 39.93 40.31 40.71 41.12 41.56 42.02 42.51 43.02 43.56 44.14 44.74 45.39 46.08 46.81 47.60 48.44 49.34 50.32 51.37 52.51 53.74 55.10 56.57 11.50 % 38.37 38.69 39.03 39.38 39.75 40.14 40.55 40.98 41.43 41.91 42.41 42.94 43.50 44.10 44.73 45.41 46.13 46.90 47.72 48.61 49.56 50.59 51.71 52.92 54.24 11.75 % 12.00% 37.54 36.76 37.85 37.04 38.16 37.34 38.50 37.65 38.84 37.97 39.21 38.31 39.59 38.67 39.99 39.04 40.41 39.44 40.85 39.85 41.32 40.28 41.81 40.74 42.33 41.22 42.88 41.73 43.47 42.27 44.09 42.85 44.75 43.45 45.45 44.10 46.21 44.79 47.02 45.53 47.88 46.33 48.82 47.18 49.83 48.09 50.92 49.08 52.11 50.15 TEVA Recommendation: Buy Triangulation: 70%DCF+30%RV Price Range: $49.30 –$55.82 TEVA Original Cost Current price Target price Upside Current % in SIM Change Ending % in SIM $48.43 $49.11 $52.00 6% 4.45% +25 bps 4.70% Mckesson Corporation (MCK) The Drugs Wholesale Industry Strong Track Record of Steady Revenue Growth DCF • Terminal Growth Rate: • Discount Rate Used: • Target Price: Acquisition of Celesio Expansion into Global Markets PATENT CLIFF Brand Name Drugs with Sales of 73 Billion will lose patient protection between 2013 and 2016. MS Drug Copaxone Acid-reflex Drug Nexium Sleep Aid Lunesta US Regulators approved 39 new drugs last year. The most approved since 2000. RECOMMENDATION OF MCK BUY 25 BPS of MCK Expected growth stemming from the main catalysts Acquisition of Celesio Patent Cliff Newly Insured from ACA & Aging Population Aetna Inc. Current Price: Ratio Target: DCF Target: HOLD $75.71 $74.35 $82.24 Company Overview Aetna Inc. is a multinational insurance company that operates health care benefits in the Healthcare-Service Industry. Three Segments Sales Earnings ROE HealthCare 90.19% 89.73% 14% Group Insurance 5.86% 9.35% 1.46% Large Case Pensions 3.95% 0.92% 0.14% Total 100% 15.6% 100% AET vs S&P 500 (5 years) S&P500 Price = 564 + 18.4*AET Price (7.54) (0.179) R-square=0.89 Key Statistics 52wk Range $49.90 - $76.71 1y Return 53.68% (19.26% for SIM) Market Cap $27.46 billion (TOP 5) Beta 0.82 EPS $5.33 ($4.87 in 2012) P/E 14.2 (17 in sector) ROE 15.6% (12.2% in sector) Dividend Yield $0.9 (1.2%) Equity & Return ROE Since 2009 Total Equity Since 2009 Business Analysis Catalysts & Benefits Obama Care brings extra 1/3 of the working population as potential consumers. Aging Population increases from 40.2M in 2010 to 54.8M in 2020, which means Demand for healthcare services and products will grow roughly 3.15% annually Low P/E, high EPS and ROE ratio means Undervalued. Risks & Uncertainties Obama Care may not implement as expected (4.2 million actual registers vs. 7 million proposed registers before 3/3/2014) Aging population will bring ultra-long-run revenues instead of in the following year. At that time, policy may be unfavorable toward Aetna. Business Cycle – Recession (e.g. taper) Relative Valuation Current Price $ 75.71 Date 2014/3/23 Peers P/E P/S P/B Current Multiple 13.33 0.58 1.95 Cigna Corp Unitedhealth Wellpoint 15.84 14.79 12.18 0.70 0.66 0.40 2.16 2.51 1.18 % chg from Health Net Target Target Humana Inc. Multiple Price 15.13 16.37 14.61 82.96 0.44 0.25 0.51 65.92 1.96 1.70 1.91 74.16 average Price Range: $65.92-$82.96 Target Price: $74.35 or ↓1.8% 74.35 current price 9.6% -12.9% -2.1% -1.8% DCF Valuation Modeling Year 2014E Revenue 55,038 % Growth 60,321 9.6% Operating Income 2,834 Operating Margin Interest and Other Interest % of Sales Taxes Tax Rate Net Income 3,100 Plus/(minus) Changes WC % of Sales Subtract Cap Ex Capex % of sales Free Cash Flow 3,250 66,398 5.0% 3,412 69,386 4.5% 3,566 2019E 72,161 4.0% 3,708 2020E 74,687 3.5% 3,838 2021E 77,077 2022E 79,312 3.2% 3,961 2.9% 4,076 2023E 81,453 2.7% 4,186 2024E 83,490 2.5% 4,291 5.1% 5.1% 5.1% 5.1% 5.1% 5.1% 5.1% 5.1% 398 436 457 465 486 505 523 540 555 570 584 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 853 933 977 35.0% 35.0% 35.0% 1,732 1,815 4.8% 1,032 35.0% 1,916 5.5% 1,078 35.0% 1,942 1.4% 1,121 35.0% 2,022 4.1% 1,160 35.0% 2,095 3.6% 1,198 1,232 35.0% 2,164 35.0% 2,228 3.3% 3.0% 1,266 35.0% 2,290 2.8% 1,297 35.0% 2,349 2.6% 450 483 506 531 555 577 597 540 555 570 584 0.8% 0.8% 0.8% 0.8% 0.8% 0.8% 0.8% 0.7% 0.7% 0.7% 0.7% 206 44 24 66 69 72 75 77 79 81 83 0.4% 0.1% 0.0% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 338 372 379 398 486 505 523 540 555 570 584 0.6% 0.6% 0.6% 0.6% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 1,901 1,886 1,966 2,115 2,081 2,166 2,244 2,241 2,308 2,372 2,432 -0.8% 4.2% 7.6% -1.6% 4.1% 3.6% -0.1% 3.0% 2.8% 2.6% % Growth NPV of Cash Flows NPV of terminal value Projected Equity Value Free Cash Flow Yield 13,432 14,373 27,804 7.43% Current P/E Projected P/E Current EV/EBITDA Projected EV/EBITDA 16.2 17.6 9.0 9.7 Shares Outstanding 338 $ $ 4.8% 2018E 5.1% 9.4% % of Sales 63,236 2017E 5.1% 1,583 Add Depreciation/Amort 2016E 5.1% % Growth Current Price Implied equity value/share Upside/(Downside) to DCF 2015E 75.71 82.24 8.6% 48% 52% 100% 14.8 16.1 8.2 8.9 14.1 15.3 7.9 8.5 Terminal Value 35,618 Free Cash Yield 6.83% Terminal P/E 15.2 Terminal EV/EBITDA 8.1 DCF Valuation Assumption NET SALES GROWTH 2016 2015 2014 Health Care 5.00% 10.00% 17.26% Group Insurance 2.00% 4.00% Large Case Pensions 0.00% -5.00% -15.00% 7.00% Other Assumptions: Operating Margin Remain unchanged (5.1%) Tax Rate Assume 35.00% Ratio to Sales Remain unchanged Depre/Amort & CapEx Offset with each other by 2024 DCF Valuation Results Terminal Grow Rate Discount Rate 9.00% 9.25% 9.50% 9.75% 10.00% 2.00% $ 84.93 $ 81.97 $ 79.21 $ 76.63 $ 74.21 2.25% $ 86.68 $ 83.57 $ 80.67 $ 77.97 $ 75.44 2.50% $ 88.57 $ 85.29 $ 82.24 $ 79.40 $ 76.75 2.75% $ 90.61 $ 87.13 $ 83.92 $ 80.93 $ 78.15 3.00% $ 92.82 $ 89.13 $ 85.73 $ 82.58 $ 79.66 Suggested Price Range: $74.21 - $92.82 DCF Target Price: $82.00 or ↑8.6% Recommendation Relative Valuation Price: , even though benefits>weakness We held 4.81% in SIM already. AET reached all-time high last week (15% rise in March), not the best time to purchase. Uncertainty offsets with opportunities. Recommendation Stock Industry Current Price Target Price Buy/Sell/Hold GILD Biotechnology 80.23 99.00 Hold TEVA Biotechnology & 49.11 Pharmaceutical 52.00 Buy AET Healthcare – Service 75.71 82.00 Hold MCK Drugs Wholesale 174.62 215.00 Buy Questions?
0
advertisement
Related documents
Download
advertisement
Add this document to collection(s)
You can add this document to your study collection(s)
Sign in Available only to authorized usersAdd this document to saved
You can add this document to your saved list
Sign in Available only to authorized users