STOCK
PRESENTATION
MIKE WALING
ZHAO ZHOU
AGENDA
• Recap
• Review Health Care Stocks
• Onyx
• Teva
• Other Stock(s)
• Wrap-up and Recommendation
RECAP
Sell ONXX (Doh!)
Health Care looks to be slightly overvalued at current
earnings multiples
Recommended to keep current weight or reduce up to 50 bps
(Class Vote) -- specific recommendation to come
•
Current Weight: 12.14% (vs. S&P 500 at 12.7%; a 56
BPS difference )
• Action: Keep at current weight or reduce by up to 50 bps
to underweight S&P 500 by ~100 BPS total
HEALTHCARE STOCKS
• Gilead Sciences
• Teva
• Wellpoint
GILEAD (GILD)
Absolute Basis
P/E TTM
P/E FTM
P/B
P/S
P/CF
High
Relative Basis
P/E TTM
P/E FTM
P/B
P/S
P/CF
High
Low
30.2
28.3
14.5
11.2
31.2
9
8.9
4.2
3.8
9.1
Median
Current
15.7
30.2
13.8
28.3
6
9.7
5.8
9.2
14.1
27.6
0.65
0.63
2
3.1
0.9
Median
Current
0.99
1.99
1
1.8
2.7
3.9
4.5
6.2
1.6
2.6
Low
2.2
1.8
7.1
12.3
3.6
TEVA (TEVA)
Absolute Basis
P/E TTM
P/E FTM
P/B
P/S
P/CF
Relative Basis
P/E TTM
P/E FTM
P/B
P/S
P/CF
High
18.7
16.5
2.9
4.1
15.8
High
Low
6.6
6.5
1.4
1.6
5.1
Low
1.5
1.3
1.6
4.8
1.9
0.48
0.51
0.6
1.1
0.6
Median
11.9
9.8
2.1
3
9.5
Current
8.7
7.9
1.5
1.9
6.4
Median
Current
0.81
0.54
0.69
0.52
0.9
0.6
2.5
1.3
1
0.6
WELLPOINT (WLP)
Absolute Basis
P/E TTM
P/E FTM
P/B
P/S
P/CF
Relative Basis
P/E TTM
P/E FTM
P/B
P/S
P/CF
High
11.1
11.4
1.3
0.6
9
High
0.79
0.82
0.7
0.5
1.1
Low
6.1
6
0.7
0.3
5.1
Low
0.43
0.51
0.3
0.2
0.6
Median
8.7
8.6
1
0.4
7.4
Median
0.59
0.63
0.5
0.4
0.8
Current
10.7
11.4
1.1
0.4
8.1
Current
0.67
0.74
0.5
0.3
0.8
ONYX
Onyx is a bio pharmaceutical company that develops and
markets therapies to treat cancer. Its core product includes
partnerships with the pharmaceutical company Bayer to sell
(1) Nexavar, a treatment for liver, kidney, thyroid, breast, and
lung cancer and (2) Stivarga, a treatment for gastro intestinal
tumors. Additionally, Onyx recently acquired the (3) Kyprolis,
a fast growing therapy to treat multiple myeloma, which it
develops and markets outright.
ONXX
Business Analysis
• Fast Growing Firm
• 3 main product lines
• Nexavar – Patent Expires 2020
• Stivarga – Patent Expires 2024
• Kyprolis – Patent Expires 2027
• High Gross Margins on Kyprolis
• Buyout Offer(s?)
ONXX
Risks:
• Buyout does not go through
• Price high compared to history, with no proven track
record of profitability or sustainability of profits
• Partnership with Bayer sours
• Competition
ONXX
Key Stats
Market Cap
Trailing P/E (ttm, intraday):
Forward P/E (fye Dec 31, 2014)
Price/Sales (ttm):
Price/Book (mrq):
9.61B
N/A
216.59
21.83
8.16
ONXX
Stock Price History
Beta:
52-Week Change:
S&P500 52-Week Change:
52-Week High (Jul 8, 2013):
52-Week Low (Aug 17, 2012):
50-Day Moving Average:
200-Day Moving Average:
1.78
73.03%
26.46%
136.87
66.37
107.43
91.75
ONXX
Price Chart
160
140
120
100
80
Price
60
40
20
0
5/9/2008
5/9/2009
5/9/2010
5/9/2011
5/9/2012
5/9/2013
ONXX – 1YR VS S&P 500
ONXX 5 YR VS S&P 500
ONXX
Technical Analysis
ONXX
Absolute Basis
P/E TTM
P/E FTM
P/B
P/S
P/CF
Relative Basis
P/E TTM
P/E FTM
P/B
P/S
P/CF
High
951.7
819.5
10.6
7121.5
770.7
Low
36.3
25
1.8
5
37.4
Median
100.9
60.3
3.6
8.2
118
Current
N/A
N/A
10.6
21.6
N/A
High
81.9
57.5
4.3
7702
92.2
Low
2.5
1.8
0.9
4.2
4.5
Median
7
4.6
1.8
7.6
13.1
Current
N/A
N/A
4.3
14.6
N/A
ONXX
Profitability – 5 Yr EPS
1.19
0.27
0.03
(1.35)
(2.88)
ONXX - GROWTH
Consensus Revenue Estimates
Revenue Est
Current Qtr. Next Qtr. Current Year Next Year
13-Jun
13-Sep
13-Dec
14-Dec
Avg. Estimate
151.73M 163.15M
635.58M 878.01M
No. of Analysts
17
17
18
18
Low Estimate
140.60M 147.80M
590.03M 813.10M
High Estimate
161.00M 184.52M
714.41M 970.70M
Year Ago Sales
72.70M
89.51M
362.16M 635.58M
Sales Growth (year/est)
108.70%
82.30%
75.50%
38.10%
ONXX
Revenue Growth
Year
Nexavar (Collaboration w/ Bayer)
Kyprolis (product revenue)
Stivarga (roaylaty revenue)
Other
Total renenue
Consensus revenue
2012
288,416
63,955
8,294
1,500
362,165
2013E
294,184
319,775
9,123
623,083
619,000
2014E
300,068
559,606
10,036
869,710
877,000
2015E
306,069
979,311
11,039
1,296,420
1,266,000
ONXX
Discounted Cash Flow
Year
Nexavar (Collaboration w/ Bayer)
% Growth
Kyprolis (product revenue)
% Growth
Stivarga (roaylaty revenue)
% Growth
Other
% Growth
Total revenue
% Growth
2013E
294,184
2%
319,775
400%
9,123
10%
-100%
623,083
70%
2014E
300,068
2%
559,606
75%
10,036
10%
869,710
45%
2015E
306,069
2%
979,311
75%
11,039
10%
1,296,420
45%
2016E
312,191
2%
1,468,966
50%
12,143
10%
1,793,300
40%
2017E
318,435
2%
2,203,450
50%
13,236
9%
2,535,120
40%
2018E
324,803
2%
3,305,174
50%
14,295
8%
3,644,273
30%
2019E
331,299
2%
4,957,762
50%
15,296
7%
5,304,357
30%
2020E
337,925
2%
6,197,202
25%
16,213
6%
6,551,341
25%
2021E
344,684
2%
7,126,782
15%
17,024
5%
7,488,490
15%
2022E
351,577
2%
7,839,461
10%
17,875
5%
-
Terminal
358,609
2%
8,231,434
5%
18,590.31
4%
-
8,208,913
10%
8,608,633
5%
(145,594)
23.37%
92,479
10.63%
448,993
34.63%
448,325
25%
608,429
24%
838,183
23%
1,166,958
22%
1,375,782
21%
1,497,698
20%
1,641,783
20%
1,291,295
15%
2,946
0.48%
3,240
0.36%
3,564
0.28%
4,537
0.25%
6,352
0.25%
8,258
0.25%
10,736
0.25%
13,420
0.25%
15,432
0.25%
16,976
0.25%
17,825
0.25%
Interest expense
Interest % of sales
(31,154)
-5%
(43,485)
-5%
(64,821)
-5%
(90,749.37)
-5%
(127,049)
-5%
(165,164)
-5%
(214,713)
-5%
(268,391)
-5%
(308,650)
-5%
(339,515)
-5%
(356,491)
-5%
Taxes (Benefit)
Tax Rate
(60,831)
40%
18,282
40%
135,708
40%
144,845
40%
195,093
40%
272,511
40%
385,192
40%
448,324
40%
481,792
40%
527,697.38
40%
381,051.51
40%
(112,971)
-40.36%
33,952
-130.05%
252,029
642.31%
217,268
-13.79%
292,639
34.69%
408,766
39.68%
577,789
41.35%
672,486
16.39%
722,688
7.47%
791,546
9.53%
571,577
-27.79%
6,231
1.00%
(18,713)
-3.00%
6,231
1.00%
8,697
1.00%
(71,377)
-8.21%
8,697
1.00%
12,964
1.00%
(123,494)
-9.53%
12,964
1.00%
18,150
1%
36,300
2%
18,150
1.00%
25,410
1%
50,820
2%
25,410
1.00%
33,033
1%
66,066
2%
33,033
1.00%
42,943
1%
85,885
2%
42,943
1.00%
53,678
1%
107,357
2%
53,678
1.00%
61,730
1%
123,460
2%
61,730
1.00%
67,903
1%
135,806
2%
67,903
1.00%
71,298
1%
142,596
2%
71,298
1.00%
(131,684)
(37,425)
128,534
253,568
343,459
474,832
663,674
779,842
846,148
Income from opearations
Operating Margin
Investment income, net
Investment % of sales
Net Income
% Growth
Add Depreciation/Amort
% of sales
Plus (minus) Changes WC
% of Sales
Subtract Cap Ex
Capex % of sales
Free Cash Flow
PV of Cash Flows
PV of Terminal Value
Target Value
# Shares
Target Price
1,885,135
4,192,014
6,077,149
65,148
$93.28
927,352
714,174
Terminal Value
11,902,892
$93
ONXX
Sensitivity Analysis
G
r
o
w
t
h
0%
1%
2%
3%
4%
5%
6%
7%
108.55
121.81
140.39
168.25
214.69
307.57
586.21
8%
92.41
101.47
113.56
130.49
155.88
198.19
282.82
Discount Rate
9%
10%
80.39
71.20
86.82
75.90
95.09
81.77
106.11
89.31
121.55
99.38
144.70
113.47
183.29
134.60
11%
64.03
67.54
71.83
77.20
84.09
93.28
106.15
12%
58.35
61.02
64.23
68.15
73.06
79.36
87.76
13%
53.78
55.85
58.29
61.23
64.82
69.30
75.07
TEVA OVERVIEW
Teva Pharmaceutical Industries Limited develops,
manufactures, markets, and distributes pharmaceutical
products worldwide. It offers generic pharmaceutical
products; and basic chemical entities, as well as specialized
product families, such as sterile products, hormones,
narcotics, high-potency drugs, and cytotoxic substances.
TEVA OVERVIEW
Industry: Pharmaceutical
Major in Generic Medicine
Market Capital: 33.86B
Current Price: $39.74(July 17th)
Div & Yield
1.09(2.08%)
Diluted shares outstanding: 852M
Target Price: $60.43
TEVA
COMPETITIVE ADVANTAGE
Teva is a mature global corporation with good
reputation.
Teva’s R&D department could be considered as one of
the best in the world.
Large economic of scale brings TEVA many benefits to
its management.
Teva already took a big portion of the market. Threat of
new entrants is low.
Teva has different drugs which consist of its “central
nervous system franchise” concept. Competitors rarely
have such complete system.
TEVA
1 YEAR PERFORMANCE
TEVA
5 YEAR PERFORMANCE
TEVA
1 YEAR PERFORMANCE
RELATIVE TO S&P500
TEVA
5 YEAR PERFORMANCE
RELATIVE TO S&P500
TEVA: DCF
Analyst: zhao zhou
JUN 7/2013
Year
Revenue
2013E
19,972
0.0%
4,676
Operating Margin
4,676
23.4%
Interest
Interest % of Sales
23.4%
3.0%
4,874
23.4%
21,442
3.0%
5,020
23.4%
22,085
3.0%
5,171
23.4%
2019E
22,748
3.0%
5,326
23.4%
2020E
23,430
3.0%
5,486
23.4%
2021E
24,133
3.0%
5,650
23.4%
2022E
24,857
3.0%
5,820
23.4%
2023E
25,603
3.0%
5,995
23.4%
(53)
(54)
(56)
(58)
(59)
(61)
(63)
(65)
(67)
-0.3%
-0.3%
-0.3%
-0.3%
-0.3%
-0.3%
-0.3%
-0.3%
-0.3%
269
269
272
289
298
307
316
325
335
345
356
6.0%
6.0%
6.0%
6.0%
6.0%
6.0%
6.0%
6.0%
6.0%
6.0%
6.0%
4,311
% of Sales
Plus/(minus) Changes WC
4,260
4,667
4,807
4,951
5,099
5,252
5,410
5,572
5.1%
3.0%
3.0%
3.0%
3.0%
3.0%
3.0%
3.0%
428
428
433
446
460
473
487
502
517
533
549
2.1%
2.1%
2.1%
2.1%
2.1%
2.1%
2.1%
2.1%
2.1%
2.1%
2.1%
4
1,104
0.0%
1,104
5.5%
3,675
5.5%
3,588
% Grow th
-2.4%
Shares Outstanding
Current Price
Implied equity value/share
4,531
1.2%
425.0%
Capex % of sales
4,311
-1.2%
40
Upside/(Downside) to DCF
4,732
20,818
2018E
(52)
Add Depreciation/Amort
Free Cash Flow
1.2%
2017E
-0.3%
% Grow th
Subtract Cap Ex
20,211
2016E
(52)
Tax Rate
% of Sales
23.4%
2015E
10.0%
3.0%
-0.3%
Taxes
Net Income
2014E
19,972
% Grow th
Operating Income
Terminal Discount Rate =
Terminal FCF Growth =
(3)
0.0%
1,117
5.5%
3,624
1.0%
851.0
$
$
39.08
60.43
54.6%
0
0.0%
1,151
5.5%
3,826
5.6%
0
0.0%
1,185
5.5%
3,941
3.0%
0
0.0%
1,221
5.5%
4,059
3.0%
0
0.0%
1,257
5.5%
4,181
3.0%
0
0.0%
1,295
5.5%
4,306
3.0%
0
0.0%
1,334
5.5%
4,435
3.0%
0
0.0%
1,374
5.5%
4,568
3.0%
0
0.0%
1,415
5.5%
4,705
3.0%
TEVA
DCF SENSITIVITY
ANALYSIS
G
r
o
w
t
h
R
a
t
e
0%
1%
2%
3%
4%
5%
6%
7%
$ 62.12
71.836
85.434
105.83
139.83
207.81
411.78
Discount Rate
8%
9% 10%
54.33 48.27 43.43
61.549 53.83 47.83
71.172 60.99 53.35
84.644 70.52 60.43
104.85 83.87 69.88
138.53 103.9 83.11
205.89 137.3 102.9
11%
39.46
43.04
47.4
52.87
59.89
69.25
82.36
12%
36.16
39.11
42.65
46.98
52.39
59.35
68.63
13%
33.36
35.84
38.76
42.28
46.57
51.93
58.83
TEVA
VALUATION RATIOS
Absolute Basis
Target Multiple
Target Price
P/E Forward
10.1
50.70
P/S
3.10
62.93
P/B
2.20
57.66
P/EBITDA
10.94
74.39
P/CF
11.20
62.16
Target Price from Ratios=$61.568
TEVA
Issues Related with Recent Poor Performance
TEVA’s Challenges to Pfizer’s Viagra patents failed(2011)
End up with a $2.15 billion settlement with Pfizer
US District Court dismisses TEVA’s patent infringement case
against Mylan over Copaxone
TEVA
Potential Risks
Copaxone Patent goes off in 2015 (20% revenue)
Regulation to Health Care company
POSSIBLE BUY – BAXTER (BAX)
Baxter International Inc., through its subsidiaries,
develops, manufactures, and markets products for
people with hemophilia, immune disorders,
infectious diseases, kidney disease, trauma, and
other chronic and acute medical conditions. The
company operates in two segments, BioScience
and Medical Products.
BAX
Key Stats
Market Cap
P/E TTM
P/E FTM
Yield
Beta:
Current Price
52-Week Change
S&P500 52-Week Change
52-Week High (Jul 23, 2013)
52-Week Low (Jul 26, 2012)
39.45B
18.17
14.06
2.70%
0.72
73.62
27.50%
26.01%
74.6
56.95
BAX – PRICE CHART
BAX - TARGET PRICE
DCF using analyst estimates; R = 8.5% and G = 5%
Revenue
GMP
GP
SGA
% sales
R&D
% sales
~Income Before Tax
Tax Rate
~Income After Tax
Diluted Shares
~Diluted EPS
Depreciation
% sales
CapEx
% sales
Change WC
CF
2009
12,562
52%
6,525
2,682
21%
917
7%
2,926
24%
2,215
614
3.61
638
5.08%
(1,014)
-8%
(371)
1,468
NPV - 5 Years
Terminal
Value
Diluted Shares
Target
7,401
35,857
43,258
556
77.80
2010
12,843
46%
5,958
2,782
22%
915
7%
2,261
37%
1,427
594
2.40
685
5.33%
(963)
-7%
(368)
781
2011
13,893
51%
7,046
2,937
21%
946
7%
3,163
29%
2,256
573
3.94
670
4.82%
(960)
-7%
(785)
1,181
2012
14,190
51%
7,301
3,085
22%
1,015
7%
3,201
27%
2,326
556
4.18
712
5.02%
(1,161)
-8%
(297)
1,580
2013E
15,280
50%
7,640
3,056
20%
1,070
7%
3,514
40%
2,109
556
3.79
764
5%
(1,222)
-8%
(306)
1,344
2014E
16,920
50%
8,460
3,384
20%
1,184
7%
3,892
40%
2,335
556
4.20
846
5%
(1,354)
-8%
(315)
1,512
2015E
17,935
50%
8,968
3,587
20%
1,255
7%
4,125
40%
2,475
556
4.45
897
5%
(1,435)
-8%
(325)
1,612
2016E
19,011
50%
9,506
3,802
20%
1,331
7%
4,373
40%
2,624
556
4.72
951
5%
(1,521)
-8%
(334)
1,719
2016E
20,152
50%
10,076
4,030
20%
1,411
7%
4,635
40%
2,781
556
5.00
1,008
5%
(1,612)
-8%
(344)
1,832
Terminal
Terminal
20,757
50%
10,378
4,151
20%
1,453
7%
4,774
40%
2,864
556
5.15
1,038
5%
(1,661)
-8%
(355)
1,887
53,916
$78
BAX – TARGET PRICE
Price Target (Morningstar): $80
Price Target Cheat (Cap IQ): $82
Value Line: “In our view, solid demand trends, coupled with
increased contributions from recent acquisitions, should help to
support positive comps in the coming quarters.
Target: $80
Price: $71.51
Price Return: 8.8%
Dividend Yield: 2.7%
Total Return: 11.5%
WRAP UP
Sell: ONXX
…but, still can reduce up to 50 bps
In our view, all stocks look to still have some upside
Options:
• Reduce GILD by 50 bps
• Sell whole position in GILD and buy BAX at appropriate
weighting or increase TEVA position
• Do Nothing
QUESTIONS?