HEALTH
CARE
MIKE WALING
ZHAO ZHOU
AGENDA
Sector Overview
Business Analysis
Economic Analysis
Financial Analysis
Valuation Analysis
Recommendation
SECTOR OVERVIEW
Size of Sector: 91.2B
S&P Breakdown vs. SIM
Sector
S&P 500 Weight
SIM Weight
+/-
Consumer Discretionary
12.10%
12.93%
0.83%
Consumer Staples
10.50%
13.54%
3.04%
Energy
10.60%
14.15%
3.55%
Financials
16.60%
14.11%
-2.49%
12.80%
12.17%
-0.63%
Industrials
10.20%
7.86%
-2.34%
Information Technology
17.80%
17.34%
-0.46%
Materials
3.30%
1.71%
-1.59%
Telecommunication Services
2.80%
2.00%
-0.80%
Utilities
3.30%
3.96%
0.66%
Cash
0.00%
0.22%
0.22%
Health Care
SECTOR OVERVIEW
S&P
Telecomm
unication
Materials Services
3%
3%
Information
Technolog
y
18%
SIM
Utilities
3%
Telecomm
unication
Materials Services
3%
3%
Consumer
Discretiona
ry
12%
Consumer
Staples
10%
Energy
11%
Industrials
10%
Health
Care
13%
Information
Technolog
y
18%
Utilities
3%
Consumer
Discretiona
ry
12%
Consumer
Staples
10%
Energy
11%
Industrials
10%
Financials
17%
Health
Care
13%
Financials
17%
SECTOR OVERVIEW
Industries
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•
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Biotechnology
HC-Distributors
HC-Equipment
HC-Facility
HC-Managed Care
HC-Services
HC-Supplies
Health Care Tech
Life Science Tools
Pharmaceuticals
SECTOR OVERVIEW
Major Companies:
Major Companies
Johnson & Johnson
Pfizer Inc
Merck and Co Inc
Gilead Sciences
Amgen
Bristol-Myers Squibb
AbbVie Inc
Medtronic
Ticker
JNJ
PFE
MRK
GILD
AMGN
BMY
ABBV
MDT
Market Cap (B)
249.65
201.09
143.79
82.95
73.75
73.16
68.58
53.69
SECTOR OVERVIEW
Performance – Quarter 6/30
SECTOR OVERVIEW
Performance – Year-to-Date
SECTOR OVERVIEW
Performance vs. Other Sectors: YTD
SECTOR OVERVIEW
Performance vs. Other Sectors: Quarter ending 6/30
SECTOR OVERVIEW
Industry Performance – YTD
SECTOR OVERVIEW
Industry Performance – Quarter Ending 6/30
BUSINESS ANALYSIS
Porter’s Five Forces
Scenario
Analysis
Threat
Competition From Rivals Pricing, new R&D innovation, competing for same markets
High
Threat of New Entrants
High barriers to entry, branding, capital and R&D intensive
Low
Power of Customers
Customers will pay top dollar for treatmetents; Caveat -- if
generics become avaible, power is diminished
Medium
Power of Suppliers
Suppliers have little room for negotiations
Low
Threat of Substitutes
For traditional treatments, very little substitutes
Low
BUSINESS ANALYSIS
Business Cycle
BUSINESS ANALYSIS
Demographics – Aging Population
• Developed
economies are
ageing rapidly
• Increased need
for medicines,
health care
facilities, and
health care
equipment
ECONOMIC ANALYSIS
Regression: S&P 500 vs. Health Care
ECONOMIC ANALYSIS
Real Government Purchases vs. Health Care
ECONOMIC ANALYSIS
CPI vs. Health Care
ECONOMIC ANALYSIS
CPI – Hospital and Related Services
FINANCIAL ANALYSIS
NET PROFIT MARGIN(RELATIVE TO S&P500)
FINANCIAL ANALYSIS
EBITDA MARGIN(RELATIVE TO S&P500)
VALUATION
SECTOR OVERALL
Absolute
(5 years)
High
Low
Medium
Current
P/E Trailing
16.3
9.9
12.2
16
P/E Forward
15.7
10.0
12.0
15.7
P/B
3.4
2.2
2.8
3.4
P/S
1.6
1.0
1.2
1.6
P/CF
11.7
7.6
9.0
11.7
Relative to
S&P500
High
Low
Medium
Current
P/E Trailing
1.0
0.68
0.9
1.0
P/E Forward
1.1
0.69
0.89
1.1
P/B
1.6
1.1
1.3
1.4
P/S
1.5
0.9
1.0
1.1
P/CF
1.3
0.9
1.0
1.1
VALUATION
Pharmaceuticals(Trailing P/E relative to S&P500)
VALUATION
Biotechnology(Trailing P/E relative to S&P500)
VALUATION
HC-Equipment(Trailing P/E relative to S&P500)
VALUATION
HC-Distributors (Trailing P/E relative to S&P500)
RECOMMENDATIONS
RISK
Legislation
Patient Protection and Affordable Care Act
Patents
Competition
Mature market
Large amount of capital requirements
Competition between existing players
RECOMMENDATIONS
RISK
Global Economy
Uncertainty of future economy
Global economy recession
Future Possible Reformation
Expensive healthcare system
Best but inefficient
RECOMMENDATIONS
Given Ratios and expected returns, HC looks to be fairly
valued to slightly overvalued
• Keep current weight, or reduce by up to 50 BPS and allocate
to higher potential sector
• Perhaps Financials or Energy?
QUESTIONS?