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?