SIM Stock Presentation
HEALTH CARE
Wang, Jinghua
Weng, Leibin
Wong, Mun Kong Wu, Qianxun
Woeste, John Michael
Apr 2013
• Overview
• Stocks
• Gilead Sciences
• Onyx
• Pfizer
• Teva
• WellPoint
• Summary
Agenda
20.00%
18.00%
16.00%
Currently, SIM holds
0.21% more than S&P 500
14.00%
12.00%
10.00%
8.00%
S&P 500 Weight
6.00%
SIM Weight
4.00%
2.00%
0.00%
S&P 500 and SIM holdings
S&P 500 Scorecard
Healthcare Outperformance
Gilead
Sciences
Market Value
Onyx
Pfizer
Teva
WellPoint
$352,368.00
$115,518.00
$271,284.00
$353,152.00
$370,888.00
% of SIM
3.07%
1.01%
2.36%
3.08%
3.23%
Current Price
48.94
88.86
28.86
39.68
66.23
Original Cost
23.18
80.47
18.17
50.26
64.52
Current Proportion
3.07%
1.01%
2.36%
3.08%
3.23%
Healthcare Holdings
Health Care
Overview
Gilead Sciences (GILD)
• Gilead Sciences, Inc., founded on 1987, is a researchbased biopharmaceutical company that discovers,
develops and commercializes innovative medicines in
areas of unmet medical need.
• Gilead's primary areas of focus include human
immunodeficiency virus (HIV), liver diseases such as
hepatitis B virus (HBV) and hepatitis C virus (HCV),
serious cardiovascular and respiratory conditions, and
oncology/inflammation.
• Operations in North America, Europe and Asia.
Company Profile
Marketed Product
Atripla
Truvada
Viread
Hepsera
Complera
Emtriva
Stribild
AmBisome
Ranexa
Letairis
Indication
HIV/AIDS
HIV/AIDS
HIV/AIDS
Liver Disease
HIV/AIDS
HIV/AIDS
HIV/AIDS
Fungal Infection
Cardiovascular
Ambrisentan
% Of Total Sales
38.03%
33.85%
9.03%
1.15%
3.64%
0.31%
0.61%
3.69%
3.97%
4.36%
US patent Expiration Data
2021
2021
2018
2014
2023
2021
2029
2016
2019
2018
Current Marketed Products
Marketing
Application
Pending
Stribild (HIV)
Cobicistat (HIV)
Elvitegravir (HIV)
Single tablet regimen of tenofovir alafenamide(TAF), elvitegravir, cobicistat and
emtricitabine (HIV)
Phase III
Phase II
Phase I
GS -7977 (Liver Disease)
GS -5885 (Liver Disease)
Ronalazine (Cardiovascular Disease)
Aztreonam for inhalation solution (Respiratory Disease)
GS - 1101 (Oncology Diseases/Inflammation)
Single tablet regimen of TAF, darunavir, cobicistat and emtricitabine (HIV)
GS - 9451 (Liver Disease)
GS - 9669 (Liver Disease)
GS - 6624 (Liver Disease)
Ranolazine (Cardiovascular Disease)
GS - 5806 (Respiratory Disease)
Simtuzumab (Respiratory Disease)
GS - 0387/CYT387 (Oncology Diseases/Inflammation)
Simtuzumab (Oncology Diseases/Inflammation)
GS - 5816 (Liver Disease)
GS-9620 (Liver Disease)
TAF (Liver Disease)
GS - 6615 (Cardiovascular Disease)
GS - 9820 (Oncology Diseases/Inflammation)
GS - 9973 (Oncology Diseases/Inflammation)
Future Products
Year
2009
2010
2011
2011
2012
Company
CV Therapeutics, Inc.
CGI Pharmaceuticals, Inc.
Arresto Biosciences, Inc.
Calistoga Pharmaceuticals, Inc.
Pharmasset
2013
YM Biosciences Inc.
Notes
Cardiovascular disorders
Serious inflammatory diseases 2011 Arresto
Fibrotic diseases and cancer
Cancer and inflammatory diseases
Chronic HCV
Hematological and immune cell disorders and
inflammatory diseases and cancers
Gilead’s Recent Acquisition
12-month Stock Performance
Financial Analysis
Gilead Science, Inc. (in %)
Gross Margin
Operating Margin
Net Income Margin
Return on Common Equity
Return on Assets
Return on Capital
Return on Invested Capital
2012
74.53
41.33
26.71
32.30
13.45
17.56
17.83
Profitability
2011
74.67
45.20
33.43
44.49
19.41
25.14
25.09
2010
76.48
49.84
36.50
47.44
27.25
35.74
35.96
2009
78.02
51.98
37.59
49.55
31.69
40.50
42.05
2008
78.87
50.40
37.09
51.18
30.99
38.58
39.85
Gilead Science, Inc.
Accounts Receivable Turnover
Inventory Turnover
Accounts Payable Turnover
Cash Conversion Cycle
2012
5.24
1.58
2.23
137.94
2011
4.69
1.64
2.30
141.90
2010
5.28
1.66
2.51
143.64
2009
5.81
1.56
2.36
142.52
2008
5.87
1.48
3.26
198.28
Accounts Receivable Turnover
Inventory Turnover
Accounts Payable Turnover
Cash Conversion Cycle
GILD
5.24
1.58
2.23
137.94
ALXN
4.20
1.44
7.43
292.90
AMGN
6.38
1.12
4.11
296.17
BIIB
8.68
1.41
3.41
194.63
CELG
5.78
1.33
2.76
205.59
Efficiency
Gilead Science, Inc.
Cash Ratio
Current Ratio
Quick Ratio
Liquidity
2012
0.44
1.44
0.85
2011
3.94
5.53
4.71
2010
0.85
2.32
1.51
2009
0.89
2.57
1.63
2008
1.47
3.50
2.30
DuPont Analysis
Valuation
GILD
High
Low
Median
Current
P/Forward E
P/S
P/B
P/EBITDA
P/CF
65.40
28.50
23.60
131.07
135.40
8.90
3.80
4.20
7.17
9.10
24.70
11.50
10.10
16.12
28.00
20.30
6.50
7.30
13.94
21.20
Multiples
Target
Multiple
22.00
9.00
8.00
15.00
24.50
Target
Fundamental
2.27
6.74
13.53
3.48
2.22
Target
Price
49.94
60.66
108.24
52.20
54.39
$
50.98
3.50%
4.00%
4.50%
5.00%
5.50%
3.50%
4.00%
4.50%
7.5%
68.39
75.38
84.70
97.74
117.30
68.39
75.38
84.70
8.5%
54.63
58.63
63.63
70.06
78.63
54.63
58.63
63.63
9.5%
45.46
47.97
50.98
54.66
59.27
45.46
47.97
50.98
Sensitivity Table
10.5%
38.90
40.58
42.54
44.85
47.63
38.90
40.58
42.54
11.5%
33.99
35.16
36.50
38.05
39.86
33.99
35.16
36.50
Valuation Method
Assigned Weights
Estimated Price
Proportional Price
Target Price
DCF
55%
48.88
26.884
P/Forward E
10%
49.94
4.994
P/S
10%
60.66
6.066
54.02
P/B
5%
108.24
5.412
Triangular Analysis
P/EBITDA
10%
52.2
5.22
P/CF
10%
54.39
5.439
Catalysts:
• High revenue growth in 2012
• Strong pipeline of potential profitable products in the area of
HIV
• Patents of current star products have long time horizon to
expire
Risks:
• Main revenue sources are not diversified but concentrated
on sales of antiviral products
• Uncertain future influence of Health Care Reform
• Possible significant losses brought by failure acquisitions
Investment Thesis
Current % of Portfolio: 3.07%
Action: + 20bps
Target % of Portfolio: 3.27%
Recommendation
Onyx Pharmaceuticals (ONXX)
• Founded in 1992 in San Francisco, California
• Biopharmaceutical company focusing on cancer
• Drugs offered:
• Nexavar with Bayer (liver and kidney cancer)
• Stivarga with Bayer (colorectal cancer)
• Kyprolis (myeloma)
Company Overview
•
•
•
•
•
•
Industry: Biotechnology
Market Cap: 6.45B
Beta: 1.16
Current Price: 90
52 Week Range: 39.64 – 93.18
Recommendation: +25bps
Key Statistics
Positives
Negatives
• Early period in the
introduction cycle of a
blockbuster drug
• Obvious potential takeout target
• Upcoming likely FDA
approvals and positive
trial data
• Unexpected negative
FDA decisions
• New negative trial data
• Recent SEO, possible
other offerings down the
road
Current Positives and
Negatives for the Stock
Relative to S&P 500
High
Low
Median
Current
P/Trailing E
P/Forward E
P/B
P/S
P/CF
81.9
57.5
6.8
7702.0
92.2
2.5
1.8
.8
4.2
4.5
7.0
6.3
1.9
135.3
13.1
NM
NM
3.1
12.9
NM
Relative to Industry
High
Low
Median
Current
P/Trailing E
P/Forward E
P/B
P/S
P/CF
62.5
72.5
5.4
1720.5
62.6
2.7
1.6
.5
1.1
3.9
6.9
6.1
1.1
26.3
12.2
NM
NM
1.2
2.7
NM
Absolute Valuation
High
Low
Median
Current
P/Forward E
P/S
P/B
P/EBITDA
819.5
9691.7
21.6
553.87
25.0
5.0
1.9
23.4
81.7
213.4
4.6
62.67
NM
17.8
7.2
NM
P/CF
770.7
37.4
118.0
NM
Valuation
Onyx Pharmacueticals (ONXX)
Analyst: John Woeste
Date: 4/6/2013
Year
Terminal Discount Rate =
Terminal FCF Growth =
2012E
Revenue
362,166
2013E
573,082
860,631
% Growth
58.2%
Operating Income
(267,086)
Operating Margin
(92,767)
-73.7%
Interest and Other
(17,469)
Interest % of Sales
(284,556)
Tax Rate
Net Income
1
5,731
% Growth
1,396,277
(262,193)
-2.7%
1,405,987
32.0%
2,390,177
50.0%
-2.7%
1,476,286
32.0%
2,987,722
32.0%
3,137,108
77.5%
61.7%
71.2%
25.0%
5.0%
14,506
9,169
14,200
21,085
32,321
51,102
80,584
118,321
167,163
218,241
238,904
4.0%
1.6%
1.7%
1.8%
1.9%
2.0%
2.1%
2.2%
2.3%
2.4%
2.5%
(63,020)
(5,596)
(45,947)
(64,326)
(93,273)
(139,910)
(209,865)
(293,811)
(396,645)
(495,806)
(520,596)
-17.4%
-1.0%
-5.3%
-5.3%
-5.3%
-5.3%
-5.3%
-5.3%
-5.3%
-5.3%
-5.3%
11,374
20,058
30,122
42,171
59,401
86,481
125,790
170,603
222,884
269,318
238,904
3.1%
3.5%
3.5%
3.5%
3.4%
3.3%
3.2%
3.1%
3.0%
2.9%
2.5%
(52,429)
(8,701)
(56,490)
(14,874)
100,294
333,231
640,381
1,093,283
1,994,144
2,508,940
2,681,340
-83.4%
549.3%
-73.7%
-774.3%
232.3%
92.2%
70.7%
82.4%
25.8%
6.9%
Terminal Value
23,014,836
Free Cash Yield
11.65%
Terminal P/E
7.3
% Growth
NPV of Cash Flows
2,878,690
34%
NPV of terminal value
Projected Equity Value
5,688,915
8,567,606
66%
100%
Free Cash Flow Yield
-0.81%
6,436,152.0
8,567,605.7
1,123.1
1,495.0
(25.3)
(33.7)
(76.3)
(101.8)
(2,767.6)
(3,684.2)
146.2
195.1
71,800
$
$
863,689
(249,707)
1,124,789
32.0%
4,875,586
50.0%
-2.7%
5.0%
136.6%
Capex % of sales
Current Price
Implied equity value/share
Upside/(Downside) to DCF
486,691
657,071
32.0%
4,643,415
(199,766)
-2.7%
9,751,173
25.0%
50.0%
TERMINAL
2022E
243.3%
% of Sales
Shares Outstanding
205,659
3,714,732
(147,975)
406,442
32.0%
9,286,831
35.0%
40.0%
-2.7%
2021E
-2675.8%
Subtract Cap Ex
Current EV/EBITDA
Projected EV/EBITDA
59,902
2,201,323
(105,696)
229,031
32.0%
7,429,465
40.0%
35.0%
-2.7%
2020E
-140.6%
% of Sales
Free Cash Flow
(2,326)
1,375,827
(70,464)
96,781
32.0%
5,503,307
50.0%
30.0%
-2.7%
2019E
572981.6%
Add Depreciation/Amort
Plus/(minus) Changes WC
28,189
3,930,934
786,187
(46,976)
2018E
50.0%
20.0%
-2.7%
137.0%
2,620,622
349,416
(32,397)
2017E
45.0%
10.0%
-2.7%
8,606
-104.8%
1,747,082
120,488
(23,141)
2016E
40.0%
3.4%
-4.5%
(124,474)
-100.0%
1,204,884
29,422
(25,976)
2015E
50.2%
-16.2%
-4.8%
Taxes
Current P/E
Projected P/E
2014E
15.00%
3.0%
89.64
119.33
33.1%
ONXX DCF
Terminal
EV/EBITDA
4.5
Price Target Summary
Mean Target:
Median Target:
High Target:
Low Target:
No. of Brokers:
102.71
104.00
112.00
93.00
17
Strong
Buy
Buy
Hold
Underper Sell
form
Mean
(1buy5sell)
8
9
3
0
1.8
Analysts Opinion
0
ONXX vs SPX (1yr)
• Current weight: 1.01%
• Recommendation: ~1.25% (+25bps)
Security
Unit Cost
Market
Price
Quantity
Unrealized
Gain/Loss
% of
Assets
Onyx Pharma
$80.47
$89.99
1,300
+$12,376
1.01
Recommendation
Pfizer (PFE)
• Founded in 1849 in NYC as fine chemicals
manufacturer
• Five segments:
•
•
•
•
•
Primary Care
Specialty Care and Oncology
Established Products and Emerging Markets
Animal Healthcare
Consumer Healthcare
Pfizer Company Overview
Market Data
Market Cap (intraday):
209.20B
Enterprise Value (Apr 4, 2013):
214.07B
Price/Sales (ttm):
3.55
Price/Book (mrq):
2.61
Shares Outstanding:
Payout Ratio:
Dividends (TTM)
Dividend Date:
Beta:
Key Stat
7.19B
45.00%
0.88
Mar 4, 2013
0.81
52-Week Change:
31.97%
S&P500 52-Week Change:
12.38%
52-Week High (Apr 4, 2013):
29.44
52-Week Low (Jun 5, 2012):
21.4
• Completed the sale of our Nutrition business to Nestlé for $11.85 billion on
November 30, 2012 and recognized a gain of approximately $4.8 billion, net of
tax, in Gain/(loss) on sale of discontinued operations––net of tax.
• Completed the sale of our Capsugel business on August 1, 2011 for $2.4 billion
in cash and recognized a gain of approximately $1.3 billion, net of tax, in
Gain/(loss) on sale of discontinued operations––net of tax.
• Revenues decreased 10% in 2012 to $59.0 billion, compared to $65.3 billion in
2011.
Income Statement
Highlights
•
•
•
•
Loss or Expiration of Intellectual Property
Pricing and Access Pressures
Global Economic Environment
FDA
Industry Specific
Challenges
Key Late Stage Development
• Paid 6.5 billions in dividends
• Declared a first-quarter 2013 dividend of $0.24/share
• Purchased approximately 349 million shares of common
stock for approximately $8.2 billion
• remaining share purchase authorization is approximately
$11.8 billion at December 31, 2012
Return to Investors
Year
2012
2013E
2014E
2015E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
58986.00
68456.47
6.00%
69517.91
1.55%
70610.51
2.30%
72163.94
2.20%
73823.71
2.30%
75816.95
2.70%
78015.65
2.90%
80356.12
3.00%
82766.80
3.00%
85249.80
3.00%
12080.00
20.5%
15548.27
22.7%
16937.81
24.4%
18293.46
25.9%
17718.19
20.0%
19636.19
22.0%
20941.99
23.0%
22347.43
24.0%
23428.89
24.5%
24131.76
24.5%
24855.71
24.5%
4031.00
6.83%
2738.26
4.00%
2780.72
4.00%
2824.42
4.00%
2886.56
4.00%
2952.95
4.00%
3032.68
4.00%
3120.63
4.00%
3214.24
4.00%
3310.67
4.00%
3409.99
4.00%
2562.00
32%
4084.20
32%
4498.01
32%
4898.06
32%
4746.12
32%
5338.64
32%
5730.98
32%
6152.58
32%
6468.69
32%
6662.75
32%
6862.63
32%
14,570
10,139
10,318
11,068
10085.51
11344.60
12178.33
13074.23
13745.96
14158.34
14583.09
Capex % of sales
7668.18
13.0%
2852.56
4.84%
1179.72
2.00%
9583.91
14.0%
-2375.80
-3.47%
2053.69
3.00%
9037.33
13.0%
-530.72
-0.76%
1390.36
2.00%
9179.37
13.0%
-546.30
-0.506%
1412.21
2.00%
9381.31
13.0%
-349.27
-0.484%
1443.28
2.00%
9597.08
13.0%
-373.55
-0.506%
1476.47
2.00%
9856.20
13.0%
-450.35
-0.594%
2274.51
3.00%
10142.03
13.0%
-497.74
-0.638%
3120.63
4.00%
10446.29
13.0%
-530.35
-0.660%
2410.68
3.00%
10759.68
13.0%
-546.26
-0.660%
1655.34
2.00%
11082.47
13.0%
-562.65
-0.660%
1705.00
2.00%
Free Cash Flow
19468.32
12451.82
-36%
14195.16
14%
14891.07
5%
14390.37
-3%
15544.41
8%
15721.92
1%
15956.58
1%
17302.72
8%
18495.69
7%
19050.56
3%
Revenue
-
% Grow th
Operating Income
Operating Margin
Interest and Other
Interest % of Sales
Taxes
Tax Rate
Net Income
% Grow th
Add Depreciation/Amort
% of Sales
Plus/(minus) Changes WC
% of Sales
Subtract Cap Ex
% Grow th
-
Discounted Cash Flow
Relative to Industry
High
Low
Median
Current
P/Trailing E
1.0
0.57
0.77
0.89
P/Forward E
0.99
0.62
0.79
0.89
P/B
1.6
0.5
0.7
0.8
P/S
1.7
0.9
1.0
1.1
P/CF
1.4
0.6
0.8
0.9
Relative to S&P 500
High
Low
Median
Current
P/Trailing E
1.0
0.5
0.70
0.90
P/Forward E
1.0
0.5
0.70
0.90
P/B
1.9
0.5
0.7
0.9
P/S
3.0
1.7
2.0
2.3
P/CF
1.3
0.5
0.7
0.8
Stock Valuation
Absolute
Valuation
High
A.
Low
B.
Median
C.
Current
D.
#Your
Target
Multiple
E.
F.
*Your
Target E,
S, B,
etc/Share
Your Target
Price
(F x G)
G.
H.
P/Forward E
21.5
5.1
11.2
13.2
11.5
1.23
14.145
P/S
7.0
1.7
3.3
3.4
3.5
9.78
34.32
P/B
10.5
1.3
2.4
2.5
2.8
11.20
31.36
P/EBITDA
33.22
5.44
9.27
9.07
9.5
3.296
31.312
P/CF
20.1
3.9
7.9
12.4
8.2
1.26
10.332
Price Target
Price Movement
• Hold – 2.36 % of our portfolio
Recommendation
Teva Pharmaceutical Industries
Limited (TEVA)
• Teva Pharmaceutical Industries Limited ( “Teva” ) is a
fully-integrated global pharmaceutical company. Business
includes three primary areas: generic, specialty and overthe-counter ( “OTC” ) medicines. Teva specializes in
development, production and marketing of a wide range
of generic and branded products, as well as active
pharmaceutical ingredients (API).
Company Profile
• Defensive
• Growth
Product lines
Product
Generic medicines
API
Specialty medicines
CNS
Copaxone®, Provigil®, Nuvigil®, Azilect®
Oncology
Treanda®
Respiratory
ProAir®, Qvar®
Women’s health
All others
OTC
Company Profile
• Direct competitors
• Generic drug makers
Ranbaxy Laboratories Limited
(private)
Mylan, Inc. (MYL)
Sandoz International GmbH
(private)
Johnson & Johnson (JNJ)
• Biotech companies
Amgen Inc. (AMGN)
Biogen Idec Inc. (BIIB)
Gilead Sciences Inc. (GILD)
Competitors
Pfizer Inc. (PFE)
Novartis AG (NVS)
Roche Holding AG (RHHBY)
Catalysts
Risks
• The increase in generics market
share especially in Europe and in
key markets in Latin America,
Central and Eastern Europe and
Asia.
• Expanding branded
pharmaceuticals by building on
Teva’s and Cephalon’s branded
product pipeline and capabilities
in combination with existing
R&D, licensing and other business
development opportunities.
• Sales of innovative products,
especially Copaxone®, face
increasing competition.
• Revenues and profits from generic
pharmaceutical products typically
decline as a result of competition,
both from other pharmaceutical
companies and as a result of
increased governmental pricing
pressure.
• Specialty pharmaceuticals
business faces intense competition
from companies that have greater
resources and capabilities.
Potentials
Year ended Dec 31, 20121
percentage
United States
10,438
51%
Europe2
5,673
28%
Rest of the world
4,206
21%
Total
20,317
100%
by geographic area
1
US$ in millions
members of the European Union as well as Switzerland and Norway
2 All
by product line
Year ended Dec 31, 2012
percentage
Generic medicines
10,385
51%
Specialty medicines
8,150
40%
All other3
1,782
9%
Total
20,317
100%
3
includes OTC and other revenue
Revenue
• In 2012, Copaxone® (glatiramer acetate injection) continued to
be the leading multiple sclerosis therapy in the United States
and globally.
• Sales of Copaxone® in 2012 grew by 12% compared to 2011,
reaching $4.0 billion (20%). In local currency terms,
Copaxone® sales grew by 14%. Copaxone® was responsible
for a significant contribution to profits and cash flow from
operations in 2012.
Revenue
Key stats1
Current price
$39.22
52 week price range
36.63 – 46.38
1 year target estimate
44.88
Volume
3.62 million
Average Volume (3mo)
4.64 million
P/E
Market Capitalization
Beta
Dividend & Yield
1
updated Apr. 5, 2013
Source: Capital IQ and Yahoo! Finance
Key Statistics
17.43
33.61 billion
0.39
1.07 (2.70%)
Performance – 1 year
Performance – 1 year
Performance – 5 year
Performance – 5 year
Profit margin
9.66%
Operating margin
21.24%
Return on assets
5.35%
Return on equity
8.45%
Total debt/Equity
64.36%
Current ratio
1.27
Dividend yield
2.70%
Payout ratio
36.00%
Ratios
DCF
Year
2012E
Revenue
20,317
% Grow th
22,227
9.4%
Operating Income
2,205
Operating Margin
Interest and Other
Interest % of Sales
Taxes
Tax Rate
Net Income Adjustments
3,334
% of Sales
6.0%
4,902
34,312
5.0%
5,147
35,685
4.0%
5,353
36,934
3.5%
5,540
38,226
3.5%
5,734
15.0%
(386)
(422)
(465)
(507)
(547)
(586)
(621)
(652)
(678)
(702)
(726)
-1.9%
-1.9%
-1.9%
-1.9%
-1.9%
-1.9%
-1.9%
-1.9%
-1.9%
-1.9%
-1.9%
(137)
218
277
302
305
303
321
337
351
363
376
7.5%
7.5%
7.5%
7.5%
7.5%
7.5%
7.5%
7.5%
7.5%
7.5%
7.5%
-
-
-
-
-
-
-
-
-
-
2,693
3,419
3,726
3,758
3,736
3,960
4,158
4,324
4,475
4,632
1,334
26.9%
1,468
9.0%
1,601
0.8%
1,729
-0.6%
1,850
6.0%
1,961
5.0%
2,059
4.0%
2,141
3.5%
2,216
3.5%
2,294
7.5%
6.0%
6.0%
6.0%
6.0%
6.0%
6.0%
6.0%
6.0%
6.0%
6.0%
270
(678)
(798)
(600)
(576)
(539)
(490)
(429)
(357)
(323)
(334)
-3.1%
1,208
5.4%
2,303
-6.0%
19,848
21,364
41,212
7.52%
16.6
21.0
12.0
14.3
-3.3%
1,330
5.4%
2,953
28.2%
48%
52%
100%
37.34
47.21
26.4%
-2.3%
1,601
6.0%
3,302
11.8%
-2.0%
1,729
6.0%
3,351
1.5%
-1.8%
1,850
6.0%
3,355
0.1%
-1.5%
1,961
6.0%
3,614
7.7%
-1.3%
2,059
6.0%
3,855
6.7%
-1.0%
2,141
6.0%
4,072
5.6%
-0.9%
2,216
6.0%
4,247
4.3%
Terminal Value
Free Cash Yield
12.1
15.3
9.5
11.4
9.5
12.1
7.9
9.4
873
$
$
4,624
32,678
15.0%
2,450
Shares Outstanding
7.0%
TERMINAL
2022E
15.0%
% Grow th
Current P/E
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
4,610
30,829
2021E
15.0%
5.4%
NPV of Cash Flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
8.0%
2020E
15.0%
1.3%
Free Cash Flow
4,535
28,812
2019E
15.0%
1,104
Capex % of sales
9.0%
2018E
16.0%
1,524
Subtract Cap Ex
4,161
26,678
2017E
17.0%
37.2%
Plus/(minus) Changes WC
10.1%
2016E
17.0%
1,963
% of Sales
24,475
2015E
15.0%
% Grow th
Add Depreciation/Amort
2014E
10.9%
7
Net Income
Current Price
Implied equity value/share
Upside/(Downside) to DCF
2013E
as of 12/31/2012
-0.9%
2,294
6.0%
4,396
3.5%
60,662
7.25%
Terminal P/E
13.1
Terminal EV/EBITDA
9.0
Sensitivity Analysis
Terminal Discount Rate
Terminal
FCF
Growth
9.5%
10.0%
10.5%
11.0%
11.5%
12.0%
12.5%
2.5%
54.15
50.36
47.04
44.12
41.53
39.21
37.13
3.0%
56.60
52.39
48.75
45.57
42.76
40.27
38.05
3.5%
59.45
54.74
50.70
47.21
44.15
41.46
39.07
4.0%
62.82
57.47
52.95
49.08
45.73
42.79
40.21
4.5%
66.86
60.71
55.58
51.24
47.53
44.31
41.49
Sensitivity Analysis
Relative to Industry
High
Low
Median
Current
P/Trailing E
1.8
0.52
1.3
0.57
P/Forward E
1.6
0.56
1.2
0.56
P/B
1.3
0.5
0.8
0.5
P/S
1.6
0.6
1.3
0.6
P/CF
2.2
0.6
1.5
0.8
Relative to S&P 500
High
Low
Median
Current
P/Trailing E
1.7
0.48
1.1
0.53
P/Forward E
1.6
0.54
1.1
0.54
P/B
2.7
0.6
1.2
0.7
P/S
4.8
1.2
2.8
1.3
P/CF
2.9
0.6
1.5
0.8
Multiples
Absolute
Valuation
High
A.
Low
B.
Median
Current
D.
E.
C.
Target
Target
E, S, B,
Multiple etc/Shar
e
F.
G.
Target
Price
(F x G)
H.
P/Forward E 29.2
6.5
15.8
7.7
12
3.29
39.48
P/S
6.7
1.6
3.8
1.8
1.63
23.3
37.98
P/B
8.5
1.4
2.7
1.5
1.5
26.21
39.32
P/EBITDA
29.04
6.86
15.12
7.71
7.59
5.05
38.32
P/CF
31.8
5.1
15.0
7.8
7.7
4.99
38.42
Multiples
• As shown in relative values both to industry and market, TEVA’s
stock multiples are now trading far below its 10-year medium, even
close to the lower boundary. This is highly related to the issue that
the company missed its Q4 expectation last year. This led to another
lower net income since the deterioration began in 2011. Higher
competition and stricter restrictions may explain the loss, because
more drug makers are pouring into the generic drug market for its
high profit. TEVA’s market share thus shrank.
Multiples
Method
Weight
Price
DCF
50%
47.21
P/ Forward E
15%
39.48
P/S
10%
37.98
P/B
5%
39.32
P/EBITDA
10%
38.32
P/CF
10%
38.42
Valuation
Target price
$42.96
• Hold in the long run
• Sell 50 bps in the SIM portfolio
Current price
$39.22
Target price
$42.96
Upside
9.54%
Current % in SIM
3.17% (market value)
Change
-50 bps
Ending % in SIM
2.67%
Recommendation
WellPoint (WLP)
Ticker: WLP
Current Price: $68.49
Market Cap: $20.57B
52 Week Range: $52.52--$74.73
Dividend Yield: 2.30%
Shares Outstanding: 324.8M
Key Statistics
• Commercial
• Consumer
• Others
Reportable Segments
1-year Stock Performance
2012
WellPoint
UnitedHealth
Aetna
Cigna
Financial
Leverage Ratio
2.47
2.43
3.99
5.57
Operating
Margin
7.34%
8.37%
8.15%
9.47%
Net Profit
Margin
4.30%
4.99%
4.39%
5.56%
Revenue
Growth Rate
1.68%
8.59%
11.89%
32.26%
Financial Ratios
Sales Growth
35.00%
30.00%
25.00%
Axis Title
20.00%
WellPoint
15.00%
UnitedHealth
10.00%
Aetna
Cigna
5.00%
0.00%
2009
2010
-5.00%
-10.00%
Sales Growth
2011
2012
• Demographics
• People between 35-54 years old growing old
• Obamacare
• Approximately 25million uninsured
• Acquisition
• Acquisition of Amerigroup in 2012
• New CEO
• Background of nonprofit organization manager
Growth Drivers
Relative to
Industry
P/Trailing E
High
Low
Median
Current
1.1
0.79
0.97
0.80
P/Forward E
1.3
0.79
0.94
0.79
P/B
0.9
0.5
0.7
0.6
P/S
1.3
0.7
1.0
0.7
P/CF
1.4
0.8
1.1
0.8
Stock Valuation
Relative to
S&P 500
P/Trailing E
High
Low
Median
Current
1.2
0.43
0.76
0.57
P/Forward E
1.2
0.51
0.73
0.56
P/B
0.8
0.3
0.6
0.4
P/S
1.1
0.2
0.4
0.2
P/CF
1.8
0.6
1.0
0.6
Stock Valuation
Absolute High
Valuatio
n
A.
Low
B.
Median
C.
Current
D.
E.
#Your
*Your
Target
Target
Multiple E, S, B,
etc/Shar
e
F.
G.
Your
Target
Price
(F x G)
H.
P/Forwa 21
rd E
P/S
1.7
6.1
12.6
8.4
12.6
5.98
75.348
0.3
0.6
0.3
0.6
199.9
119.94
P/B
2.4
0.7
1.6
0.9
1.6
74.51
119.22
P/EBIT
DA
P/CF
18.14
2.77
6.77
4.19
6.77
12.51
84.69
19.5
5.1
10.7
6.3
10.7
7.46
79.82
Stock Valuation-Multiples
•
• Target Price: $89.77
• Current Price: $68.49
• Recommendation: Buy +50 basis point
Recommendation
Gilead
Sciences
Market Value
Onyx
Pfizer
Teva
WellPoint
$352,368.00
$115,518.00
$271,284.00
$353,152.00
$370,888.00
% of SIM
3.07%
1.01%
2.36%
3.08%
3.23%
Current Price
48.94
88.86
28.86
39.68
66.23
Original Cost
23.18
80.47
18.17
50.26
64.52
Current proportion
3.07%
1.01%
2.36%
3.08%
3.23%
+20 bps
+25 bps
Hold
-50 bps
+30 bps
Recommendation
Summary