HEALTHCARE SECTOR PORTFOLIO COMPARISON
S&P500
22.5%
SIM
Portfolio Allocation - %
20.0%
17.5%
1.8%
15.0%
Overweight
12.5%
10.0%
7.5%
5.0%
2.5%
0.0%
Overview
Amgen
Gilead
Sciences
Pfizer
Teva
Johnson &
Johnson
WellPoint
Inc.
Wrap Up
HEALTHCARE SECTOR RECOMMENDATION
Recommendation – Hold Healthcare Sector at current weight.
Current Weights: S&P -11.7%, SIM-13.5%, 1.8% Overweight
Positives
Risks
• Big Problems Remain
• Cancer
• Alzheimer's
• Life Expectancy and Age
Demographics are Growing
• Legislation
• Patents / Generics
• Medicaid / Medicare
• Don’t Expect Large Sector Growth
Industries to Overweight
Industries to Underweight
• Generics
• Hospitals
• Medical Practitioners
Overview
Amgen
Gilead
Sciences
•Diagnostic Substances
•Medical Laboratories & Research
Pfizer
Teva
Johnson &
Johnson
WellPoint
Inc.
Wrap Up
SIM HOLDINGS & RECOMMENDATION SUMMARY
AMGN
Market Value
JNJ
414,373 441,597
PFE
TEVA
WLP
GILD
306,020
370,148
0
0
% of SIM
3.6%
3.9%
2.7%
3.27%
0%
0%
Current Price
67.63
64.46
21.28
44.59
66.11
45.26
Target Price
77.20
74.00
28.01
62.95
94
54.5
Upside
14.1%
14.8%
31.6%
41.1%
25.5%
20.4%
Recommendation
SELL
SELL
BUY
BUY
BUY
BUY
BP Change
-360
-390
+60
+23
+347
+320
0%
0%
3.3%
3.5%
3.47%
3.2%
Ending Allocation
Overview
Amgen
Gilead
Sciences
Pfizer
Teva
Johnson &
Johnson
WellPoint
Inc.
Wrap Up
AMEGEN - OVERVIEW
• Amgen discovers, develops, manufactures, and delivers innovative human
therapeutics.
• Helping millions of people around the world in the fight against cancer, kidney
disease, rheumatoid arthritis, bone disease, and other serious illnesses.
Used to treat anemia (a
lower than normal
number of red blood cells)
in people with chronic
kidney failure (condition
in which the kidneys
slowly and permanently
stop working over a period
of time).
Overview
Amgen
Used to decrease the
chance of infection in people
who have certain types of
cancer and are receiving
chemotherapy medications
that may decrease the
number of neutrophils, in
people who are undergoing
bone marrow transplants,
and in people who have
severe chronic neutropenia.
Gilead
Sciences
Pfizer
Used to treat anemia (a
lower than normal number
of red blood cells) in people
with chronic kidney failure
(condition in which the
kidneys slowly and
permanently stop working
over a period of time).
Teva
Johnson &
Johnson
Used alone or with other
medications to relieve the
symptoms of certain
autoimmune disorders
(conditions in which the
immune system attacks
healthy parts of the body
and causes pain, swelling,
and damage).
WellPoint
Inc.
Wrap Up
AMGEN – CATALYST AND RISKS
Catalysts
Risks
• Strong presence in Europe.
• Sales and cash flow support
R&D.
• 45 products in development
with 4 (AMG-785, XGEVA, AMG145, Ganitumab) that can
produce significant sales.
• Holds an enormous amount of
cash.
Overview
Amgen
Gilead
Sciences
Pfizer
• Trying to replace revenue with
new products.
• There survivability depends on
there ability to get drugs
approved.
• All 4 of their large revenue
producing drugs patents end
shortly: Enbrel (2012),
Neupogen (2013), Epogen
(2013), Arnesp(2014).
• Various Healthcare regulation.
Teva
Johnson &
Johnson
WellPoint
Inc.
Wrap Up
AMEGEN – FINANCIAL OVERVIEW
Current Price
67.73
1yr Target Estimate
70.95
52wk Range
47.66 - 70.00
Volume
3,231,006
Market Cap
53.91B
Enterprise Value
54.70B
Trailing P/E
16.76
Forward P/E
10.08
Return on Assets
7.16%
Return on Equity
17.14%
52-Week Change
31.95%
Shares Outstanding
796.00M
Overview
Amgen
Gilead
Sciences
Pfizer
Teva
Johnson &
Johnson
WellPoint
Inc.
Wrap Up
AMGEN – FINANCIAL TRENDS
19000
17000
15000
13000
11000
9000
7000
5000
3000
1000
7
Net
Sales
Cost of
Sales
R&D
EPSBasic
5
4
EPSDiluted
3
2
ROE Trend
Cash &
Equiv
6
Overview
Amgen
Gilead
Sciences
Pfizer
Teva
Johnson &
Johnson
WellPoint
Inc.
Wrap Up
AMGEN – RATIO ANALYSIS
Current Price:
$67.73
Absolute
Valuation
P/Forward E
High
42.6
Low
10.0
Median
16.5
Current
11.2
Your
Target
Multiple
15
P/S
16.4
3.2
6.5
3.4
5
19.4
97.00
P/B
12
2
3.7
2.4
2.8
34.8
93.96
31.62
7.13
12.49
10.01
13
6.7
87.10
41.6
7.8
14.1
12.7
15
4.0
60.00
P/EBITDA
P/CF
Targets
5.2
Target
Price
78.45
Amgen’s current multiples are lower than its historical values.
The target prices are higher than the current price.
Overview
Amgen
Gilead
Sciences
Pfizer
Teva
Johnson &
Johnson
WellPoint
Inc.
Wrap Up
Amgen- DCF
Terminal Discount Rate = 10.6%
Terminal FCF Growth = 3.6%
Year
2011E
2012E
2013E
2014E
2015E
2016E
2017E
2018E
2019E
2020E
2021E
Revenue
% Growth
15,453
16,009
3.6%
16,586
3.6%
17,183
3.6%
17,801
3.6%
18,442
3.6%
19,106
3.6%
19,794
3.6%
20,506
3.6%
21,245
3.6%
22,010
3.6%
Operating Income
Operating Margin
4,312
27.9%
4,771
29.8%
5,357
32.3%
5,155
30.0%
5,340
30.0%
5,533
30.0%
5,732
30.0%
5,938
30.0%
6,152
30.0%
6,373
30.0%
6,603
30.0%
Interest and Other
Interest % of Sales
142
0.9%
265
1.5%
174
1.2%
198
2.1%
303
1.7%
166
0.9%
248
1.3%
297
1.5%
226
1.1%
297
1.4%
330
1.5%
487
14.3%
653
14.5%
752
14.5%
719
14.5%
730
14.5%
778
14.5%
795
14.5%
818
14.5%
859
14.5%
881
14.5%
910
14.5%
Net Income
% Growth
3,683
3,852
4.6%
4,432
15.0%
4,238
-4.4%
4,307
1.6%
4,588
6.5%
4,688
2.2%
4,823
2.9%
5,067
5.1%
5,195
2.5%
5,363
3.2%
Add Depreciation/Amort
% of Sales
Plus/(minus) Changes WC
% of Sales
Subtract Cap Ex
Capex % of sales
1,060
6.9%
(581)
-3.8%
600
3.9%
1,041
6.5%
(496)
-3.1%
544
3.4%
979
5.9%
(580)
-3.5%
498
3.0%
894
5.2%
34
0.2%
378
2.2%
819
4.6%
285
1.6%
445
2.5%
701
3.8%
369
2.0%
479
2.6%
592
3.1%
439
2.3%
439
2.3%
495
2.5%
396
2.0%
435
2.2%
349
1.7%
472
2.3%
287
1.4%
212
1.0%
552
2.6%
191
0.9%
0
0.0%
550
2.5%
0
0.0%
Free Cash Flow
% Growth
3,562
3,852
8.1%
4,332
12.5%
4,788
10.5%
4,966
3.7%
5,179
4.3%
5,281
2.0%
5,279
0.0%
5,600
6.1%
5,769
3.0%
5,913
2.5%
Taxes
Tax Rate
NPV of Cash Flows
29,494
48%
NPV of TV
31,956
52%
Projected EV
61,450
100%
Free Cash Flow Yield
Terminal
Value
Free Cash
Yield
6.60%
Current P/E
Projected P/E
14.6
16.7
14.0
16.0
12.2
13.9
Current EV/EBITDA
Projected EV/EBITDA
9.9
11.3
9.1
10.4
8.4
9.5
Shares Outstanding
Current Price
Implied EV/share
Upside/(Downside) to
DCF
$
$
796
67.63
77.20
14.1%
Amgen
Gilead
Sciences
Pfizer
Teva
87,518
6.76%
Terminal P/E
16.3
Terminal
EV/EBITDA
13.1
Johnson &
Johnson
GILEAD SCIENCES - OVERVIEW
• Gilead Sciences, Inc., a biopharmaceutical company, is engaged in the
discovery, development, and commercialization of therapeutics for the
treatment of human immunodeficiency virus (HIV)/AIDS, liver disease,
respiratory and cardiovascular/metabolic diseases.
•Its products include Truvada, Viread, Atripla, Complera and Emtriva for the
treatment of HIV infection in adults.
• Gilead’s strategy of creating fixed-dose combinations of existing HIV/AIDS
drugs has been an enormous success.
Overview
Amgen
Gilead
Sciences
Pfizer
Teva
Johnson &
Johnson
WellPoint
Inc.
Wrap Up
GILEAD SCIENCES – CATALYST AND RISKS
Catalysts
Risks
• Deep HIV Pipeline.
• Great operating
leverage and generates
huge amounts of cash
each year.
Overview
Amgen
Gilead
Sciences
Pfizer
• All of Gilead’s key
products have generic
companies seeking to
launch competitive
products.
• All of the companies top
ten product lines have
their patents end within
10 years.
Teva
Johnson &
Johnson
WellPoint
Inc.
Wrap Up
GILEAD SCIENCES – FINANCIAL OVERVIEW
Current Price
45.26
1yr Target Estimate
57.70
52wk Range
34.45 - 56.50
Volume
6,876,617
Market Cap
34.09B
Enterprise Value
32.04B
Trailing P/E
12.75
Forward P/E
10.36
Return on Assets
16.72%
Return on Equity
42.94%
52-Week Change
16.11%
Shares Outstanding
753.11M
Overview
Amgen
Gilead
Sciences
Pfizer
Teva
Johnson &
Johnson
WellPoint
Inc.
Wrap Up
GILEAD SCIENCES – ROE
Overview
Amgen
Gilead
Sciences
Pfizer
Teva
Johnson &
Johnson
WellPoint
Inc.
Wrap Up
GILEAD SCIENCES – PRODUCT LINES
Atripla
Truvada
Viread
Hepsera
Emtriva
Complera
AmBisome
Letairis
Ranexa
Other
products
Total sales
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
205,729
903,381
1,572,455
2,382,113
2,926,579
3,224,518
3,444,108
3,643,866
3,516,331
3,614,788
3,849,749
3,945,993
3,610,583
3,664,742
3,829,656
3,117,340
1,194,292
1,589,229
2,106,687
2,489,682
2,649,908
2,875,141
3,101,990
3,499,044
3,890,937
4,497,923
4,916,230
5,157,126
4,749,713
4,004,008
3,875,880
3,972,777
689,356
613,169
621,187
667,510
732,240
737,867
728,644
745,402
809,507
849,982
871,232
911,309
882,147
868,915
908,885
984,322
230,531
302,722
341,023
271,595
200,592
144,679
102,722
84,232
60,647
40,027
28,419
22,167
18,842
15,545
12,358
9,528
36,393
31,493
31,080
27,974
27,679
28,764
28,908
29,631
29,927
29,949
25,457
22,275
21,562
21,885
22,651
18,121
0
0
0
0
0
38,747
163,443
254,153
350,223
428,673
503,691
551,793
582,142
596,696
605,646
514,194
223,031
262,571
289,651
298,597
305,856
330,156
354,125
376,258
396,952
410,846
375,924
349,609
304,160
243,328
172,763
125,253
0
21,020
112,855
183,949
240,279
293,426
344,189
398,054
447,811
403,030
340,560
269,043
193,711
169,497
156,785
140,322
0
0
0
131,062
239,832
320,004
397,829
460,686
524,721
560,402
612,520
643,758
661,784
556,560
443,578
382,364
8,865
9,524
9,858
16,829
66,956
109,057
130,127
189,985
251,901
339,261
768,425
1,370,487
2,062,583
2,732,922
3,356,028
4,144,695
2,588,197
3,733,109
5,084,796
6,469,311
7,389,921
8,102,359
8,796,083
9,681,312
10,278,958
11,174,882
12,292,208
13,243,559
13,087,226
12,874,097
13,384,229
13,408,915
= US Patent Expiring
= EUR Patent Expiring
Overview
Amgen
Gilead
Sciences
Pfizer
Teva
Johnson &
Johnson
WellPoint
Inc.
Wrap Up
GILEAD SCIENCES – RATIO ANALYSIS
Current Price:
$45.19
Absolute
Valuation
P/Forward E
High
94.4
Low
8.9
Median
25.7
Current
12.2
Your
Target
Multiple
15
P/S
32.9
3.8
12.5
4.2
11
4.1
45.06
P/B
23.6
4.2
11.4
6
10
7.8
78.00
P/EBITDA
131.1
7.2
21.0
8.3
15
6.1
91.80
P/CF
135.4
8.3
30.4
12.2
16
4.9
78.40
Targets
4.4
Target
Price
66.30
Gilead Science’s current multiples are lower than its historical values.
The target prices are higher than the current price.
Overview
Amgen
Gilead
Sciences
Pfizer
Teva
Johnson &
Johnson
WellPoint
Inc.
Wrap Up
Terminal Discount Rate =
11.0%
Gilead Sciences - DCF
Terminal FCF Growth =
2.8%
Year
2011
2012E
8,102,359
8,796,083
Revenue
% Growth
Operating Income
Operating Margin
Interest and Other
Tax Rate
Net Income
2018E
2019E
2020E
9,681,312 10,278,958 11,174,882 12,292,208 13,243,559 13,087,226 12,874,097 13,384,229 13,408,915
7.7%
-1.2%
-1.6%
4.0%
0.2%
3,506,815
3,191,219
3,631,460
3,854,609
4,402,903
5,101,266
5,774,192
5,509,722
5,149,639
5,515,641
5,425,247
43.3%
40.1%
38.6%
37.5%
39.4%
41.5%
43.6%
42.1%
40.0%
41.2%
40.5%
138,837
148,654
102,622
119,236
156,448
159,799
225,141
248,657
231,734
240,916
214,543
1.7%
1.7%
1.1%
1.2%
1.4%
1.3%
1.7%
1.9%
1.8%
1.8%
1.6%
861,945
976,580
1,078,910
1,109,030
836,552
894,406
1,059,869
973,297
949,156
996,923
1,036,930
12.0%
17.7%
18.7%
19.8%
19.7%
18.1%
19.1%
18.5%
19.3%
18.9%
19.9%
2,506,033
2,065,985
2,449,928
2,626,343
3,409,903
4,047,062
4,489,182
4,287,768
3,968,749
4,277,802
4,173,774
-17.6%
18.6%
7.2%
29.8%
18.7%
10.9%
-4.5%
-7.4%
7.8%
-2.4%
250,000
263,882
261,395
246,695
245,847
245,844
211,897
143,959
102,993
53,537
-
3.1%
3.0%
2.7%
2.4%
2.2%
2.0%
1.6%
1.1%
0.8%
0.4%
0.0%
113,557
615,726
484,066
462,553
122,924
110,630
225,141
327,181
411,971
468,448
509,539
1.4%
7.0%
5.0%
4.5%
1.1%
0.9%
1.7%
2.5%
3.2%
3.5%
3.8%
29,000
26,388
58,088
41,116
33,525
61,461
79,461
52,349
64,370
26,768
-
0.3%
0.6%
0.4%
0.3%
0.5%
0.6%
0.4%
0.5%
0.2%
0.0%
2,840,590
2,919,205
3,137,301
3,294,476
3,745,150
4,342,075
4,846,759
4,706,559
4,419,343
4,773,018
4,683,313
2.8%
7.5%
5.0%
13.7%
15.9%
11.6%
-2.9%
-6.1%
8.0%
-1.9%
% Growth
NPV of Cash Flows
22,920,147
53%
Terminal Value
NPV of terminal value
20,677,721
47%
Free Cash Yield
Projected Equity Value
43,597,868
100%
Free Cash Flow Yield
8.34%
Current P/E
13.6
Projected P/E
17.4
Current EV/EBITDA
10.9
13.4
Projected EV/EBITDA
Shares Outstanding
16.5
21.1
11.9
14.6
58,712,754
7.98%
Terminal P/E
14.1
Terminal EV/EBITDA
12.1
13.9
17.8
10.5
13.0
753,110
Current Price
$
45.20
Implied equity value/share
$
57.89
Upside/(Downside) to DCF
2021E
10.0%
Capex % of sales
Free Cash Flow
2017E
8.7%
% of Sales
Subtract Cap Ex
2016E
6.2%
% of Sales
Plus/(minus) Changes WC
2015E
10.1%
% Growth
Add Depreciation/Amort
2014E
8.6%
Interest % of Sales
Taxes
2013E
28.1%
Gilead
Sciences
Pfizer
Teva
Johnson &
Johnson
WellPoint
Inc.
GILEAD SCIENCES – SENSITIVITY ANALYSIS
Terminal Growth Rate
Discount Rate
Overview
10.50%
10.75%
11.00%
11.25%
2.25%
59.55
57.74
56.03
54.41
2.50%
60.51
58.62
56.84
55.17
2.75%
61.53
59.56
57.71
55.97
3.00%
62.62
60.56
58.63
56.82
3.25%
63.78
61.63
59.61
57.72
Amgen
Gilead
Sciences
Pfizer
Teva
Johnson &
Johnson
WellPoint
Inc.
Wrap Up
PFIZER OVERVIEW
What does the company do?
 A research-based, global biopharm co, which applies science and its global
resources to improve health and well-being at every stage of life. It is diversified
global health care portfolio includes human and animal biologic and small
molecule medicines and vaccines, as well as nutritional prods and many
consumer health care products.
Segments:
 Biopharm
 Biopharm includes the Primary Care, Specialty Care, Established Products Emerging
Markets and Oncology customer-focused units.
 Diversified.
 Diversified includes Animal Health products that prevent and treat diseases in livestock
and companion animals, and Consumer Healthcare products.
Overview
Amgen
Gilead
Sciences
Pfizer
Teva
Johnson &
Johnson
WellPoint
Inc.
Wrap Up
PFIZER OVERVIEW (CONTINUE)
Market Cap
162.81B
Shares Outstanding
769M
Average Daily Volume
39M
Profit Margin
14.85%
Revenue
67.42B
Div. Yield
4.20%
Beta
0.77
P/E
16.59
EPS
1.28
52wk Range
16.63-22.17
Overview
Amgen
Gilead
Sciences
Pfizer
Teva
Johnson &
Johnson
WellPoint
Inc.
Wrap Up
PFIZER: RISKS & CATALYSTS
 Risks
• Increased regulation pressure
• Government might increase controls on buying and price of healthcare products.
•Expiration of patents
•Patent protection on “Viagra” & “Detrol” will end on March 2012
•Drug approvals
•Many products pipelines are pending to FDA to get approval. It is time consuming and expensive
•High competition
Catalysts
• Baby boomers star to enter in “old age” stages
•They also dependant on use of prescription to treat health problems
•Revenue diversification
•Revenue distribution across many business segments and countries
•Potential Pipelines
•14 drugs in late stage pending to approval
Overview
Amgen
Gilead
Sciences
Pfizer
Teva
Johnson &
Johnson
WellPoint
Inc.
Wrap Up
PFIZER: FINANCIAL ANALYSIS
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
-
EPS-diluted
3.00
2.50
Net
Sales
2.00
Cost of
Sales
1.00
Cash &
Equiv
2006
2007
2008
2009
2010
0.50
2005
2006
2007
2008
2009
2010
ROE
2005
1.50
Overview
Amgen
Gilead
Sciences
Pfizer
Teva
Johnson &
Johnson
WellPoint
Inc.
Wrap Up
PFIZER: RATIO VALUATION
Absolute
Valuation
High
Low
Median
Current
Target
Multiple
P/Forward E
26.6
5.9
11.9
9.8
11.9
2.2
26.30
P/S
8.8
1.7
3.6
2.4
3.6
8.1
29.30
P/B
14.3
1.3
2.6
1.9
2.6
11.4
29.72
P/EBITDA
33.2
5.4
9.9
5.6
9.9
3.9
38.41
P/CF
28.9
3.9
8.9
6.4
8.9
3.4
30.17
Johnson &
Johnson
WellPoint
Inc.
Wrap Up
Target
Target Price
Target Price: $30
Overview
Amgen
Gilead
Sciences
Pfizer
Teva
Terminal Discount Rate
Terminal Growth Rate
11.0%
2.5%
Year
2011E 2012E 2013E
2014E 2015E 2016E 2017E
2018E 2019E 2020E 2021E
Revenue
67,339 63,557 63,146
64,409 65,697 67,011 68,352
69,719 71,113 72,535 73,986
% Growth
Operating Income
Operating Margin
Interest and Other
Interest % of Sales
Taxes
Tax Rate
Net Income
-5.6%
18,186 23,361 23,644
% of Sales
Plus/(minus) Changes
WC
% of Sales
Subtract Cap Ex
Capex % of sales
Free Cash Flow
2.0%
2.0%
2.0%
23,831 24,308 24,794 25,290
2.0%
2.0%
2.0%
2.0%
25,796 26,312 26,838 27,375
36.8%
37.4%
37.0%
37.0%
37.0%
37.0%
37.0%
37.0%
37.0%
37.0%
-
-
-
-
-
-
-
-
-
-
-
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
546
6,074
5,937
5,958
6,077
6,199
6,323
6,449
6,578
6,710
6,844
3.0%
26.0%
25.1%
25.0%
25.0%
25.0%
25.0%
25.0%
25.0%
25.0%
25.0%
17,611 17,270 17,683
17,814 18,171 18,536 18,908
19,287 19,674 20,069 20,471
-1.9%
2.4%
0.7%
2.0%
2.0%
2.0%
2.0%
2.0%
2.0%
2.0%
9,000
1,525
1,452
1,417
1,380
1,340
1,367
1,325
1,351
1,306
1,258
13.4%
2.4%
2.3%
2.2%
2.1%
2.0%
2.0%
1.9%
1.9%
1.8%
1.7%
(1,527)
1,152
125
644
657
670
684
697
711
725
740
-2.3%
1.8%
0.2%
1.0%
1.0%
1.0%
1.0%
1.0%
1.0%
1.0%
1.0%
1,513
1,505
1,452
1,417
1,380
1,340
1,367
1,325
1,351
1,306
1,258
2.2%
2.4%
2.3%
2.2%
2.1%
2.0%
2.0%
1.9%
1.9%
1.8%
1.7%
23,570 18,442 17,808
% Growth
Overview
2.0%
27.0%
% Growth
Add
Depreciation/Amort
-0.6%
-21.8%
Amgen
-3.4%
18,458 18,828 19,206 19,591
3.6%
Gilead
Sciences
2.0%
2.0%
Pfizer
2.0%
PFIZER: DCF
Current Price
$ 21.28
Implied equity
value/share
$ 26.02
Upside/(Downside) to
DCF
22.3%
19,984 20,385 20,794 21,211
2.0%
Teva
2.0%
2.0%
2.0%
Johnson &
Johnson
WellPoint
Inc.
Wrap Up
PFIZER DCF SENSITIVITY ANALYSIS
Terminal Growth Rate
Discount Rate
Overview
10.25%
10.50%
10.75%
11.00%
1.50%
$26.81
$26.06
$25.35
$24.68
1.75%
$27.19
$26.41
$25.67
$24.98
2.00%
$27.59
$26.78
$26.02
$25.30
2.25%
$28.02
$27.18
$26.38
$25.63
2.50%
$28.48
$27.60
$26.77
$25.99
Amgen
Gilead
Sciences
Pfizer
Teva
Johnson &
Johnson
WellPoint
Inc.
Wrap Up
PFIZER OVERALL VALUATION
VALUATION
PRICE
WEIGHT
MULTIPLES
$30
50%
DCF
$26.02
50%
WEIGHTED AVG.
$28.01
CURRENT PRICE
$21.28
IMPLIED EQUITY VALUE $28.01
UPSIDE
Overview
Amgen
Gilead
Sciences
31.63%
Pfizer
Teva
Johnson &
Johnson
WellPoint
Inc.
Wrap Up
TEVA OVERVIEW
What does the company do?
 Teva Pharmaceutical Industries Limited, a pharmaceutical company, develops,
produces, and markets generic drugs; and proprietary branded pharmaceuticals
in various therapeutic categories and active pharmaceutical ingredients
worldwide. It holds 14.4% of generic pharmaceutical market
Segments:
 Generic drugs
 Brand-named drugs
 Special respiratory
 Active pharmaceutical ingredients
 Women’s health
 Biosimilars
Overview
Amgen
Gilead
Sciences
Pfizer
Teva
Johnson &
Johnson
WellPoint
Inc.
Wrap Up
TEVA OVERVIEW (CONTINUE)
Market Cap
39.37B
Profit Margin
15.07%
Revenue
18.31B
Div. Yield
1.80%
Beta
0.37
Trailing P/E
14.43
Forward P/E
7.44
EPS
3.09
52wk Range
44.44-45.35
Overview
Amgen
Gilead
Sciences
Pfizer
Teva
Johnson &
Johnson
WellPoint
Inc.
Wrap Up
TEVA: RISKS & CATALYSTS
 Risks
• Governmental interference and regulation
• Increasing corporate taxes
• Limitations of the growth of generic drugs
•Generics can only grow as brand-named drugs lose patent protection
•High competition
•Particularly in India and China
Catalysts
• Baby boomers star to enter in “old age” stages
•They also dependant on use of prescription to treat health problems
• Development on non-infringing products
• Production will reduce cost
• Multiple sclerosis drug
• Copaxone is expected to peak in sales in 2012
Overview
Amgen
Gilead
Sciences
Pfizer
Teva
Johnson &
Johnson
WellPoint
Inc.
Wrap Up
TEVA: FINANCIAL ANALYSIS
18,000
EPS diluted
16,000
14,000
4.00
12,000
Net
sales
Cost of
Sales
Cash &
Equiv
10,000
8,000
6,000
4,000
2,000
3.00
2.00
1.00
2005
2006
2007
2008
2009
2007
2008
2009
2010
2010
ROE
2005
2006
Overview
Amgen
Gilead
Sciences
Pfizer
Teva
Johnson &
Johnson
WellPoint
Inc.
Wrap Up
TEVA: RATIO VALUATION
Absolute
Valuation
High
Low
Median
Current
Your Target
Multiple
Your Target Share
Your Target
Price
P/Forward E
29.2
6.5
17.1
8
13
5.99
77.87
P/S
6.7
2
3.9
2.3
3.2
25.54
81.72
P/B
8.5
1.4
3.1
1.7
2
26.61
53.22
P/EBITDA
29.04
6.89
16.26
8.27
10
5.47
54.70
P/CF
31.8
6.5
15.6
9
11
5.03
55.29
Target Price: $64
Overview
Amgen
Gilead
Sciences
Pfizer
Teva
Johnson &
Johnson
WellPoint
Inc.
Wrap Up
Termina
l
Discoun
t Rate =
Termina
l FCF
Growth
=
Analyst: Shanshan Xie
Date: 02/26/12
Year
2011E
Revenue
% Growth
18,312
2012E
2013E
21,940 22,599
19.8%
3.0%
2014E
2015E
TEVA: DCF
10.7%
3.5%
2016E
2017E
2018E
2019E
2020E
2021E
24,700 27,195 30,486 33,107 36,253
39,914 43,826 48,340
9.3% 10.1% 12.1%
8.6%
9.5% 10.1%
9.8% 10.3%
3,109
17.0%
3,532
16.1%
3,819
16.9%
4,224
17.1%
4,596
16.9%
5,152
16.9%
5,595 6,127
16.9%
16.9%
6,745
16.9%
7,407
16.9%
8,169
16.9%
Financial expenses and
other
Interest % of Sales
153
0.8%
223
1.0%
240
1.1%
445
1.8%
789
2.9%
1,097
3.6%
1,093 1,523
3.3%
4.2%
1,636
4.1%
2,147
4.9%
2,175
4.5%
Taxes
Tax Rate
127
0.7%
351
1.6%
836
3.7%
208
5.5%
263
6.9%
332
8.2%
419 387
9.3%
8.4%
542
10.6%
515
9.8%
629
10.5%
Net Income
% Growth
3,666
4,120
12.4%
4,500
9.2%
3,511
-22.0%
3,485
-0.8%
3,662
5.1%
4,024 4,157
9.9%
3.3%
4,507
8.4%
4,684
3.9%
5,305
13.3%
Add Depreciation/Amort
% of Sales
Plus/(minus) Changes
WC
% of Sales
Subtract Cap Ex
Capex % of sales
1,069
5.8%
856
3.9%
972
4.3%
519
2.1%
1,061
3.9%
1,250
4.1%
960
2.9%
1,305
3.6%
1,038
2.6%
1,402
3.2%
1,644
3.4%
597
3.3%
736
4.0%
685
3.1%
851
3.9%
600
2.7%
972
4.3%
371
1.5%
519
2.1%
490
1.8%
1,061
3.9%
366
1.2%
1,250
4.1%
265
0.8%
960
2.9%
109
0.3%
1,305
3.6%
(599)
-1.5%
1,038
2.6%
(351)
-0.8%
1,402
3.2%
145
0.3%
1,644
3.4%
Free Cash Flow
% Growth
4,596
4,810
4.6%
5,100
6.0%
3,882
-23.9%
3,974
2.4%
4,028
1.4%
4,289
6.5%
4,266
-0.5%
3,909
-8.4%
4,333
10.9%
5,450
25.8%
Operating Income
Operating Margin
Overview
Amgen
Gilead
Sciences
Pfizer
Teva
Current Price
$ 44.59
Implied equity
value/share
$ 61.89
Upside/(Downside) to
DCF
Johnson &
Johnson
WellPoint
Inc.
38.8%
Wrap Up
TEVA OVERALL VALUATION
VALUATION
PRICE
WEIGHT
MULTIPLES
$64
50%
DCF
$61.89
50%
WEIGHTED AVG.
$62.93
CURRENT PRICE
$44.59
IMPLIED EQUITY VALUE $62.95
UPSIDE
Overview
Amgen
Gilead
Sciences
41.1%
Pfizer
Teva
Johnson &
Johnson
WellPoint
Inc.
Wrap Up
Investor Basics
Current Price
$64.42
1yr Target Estimate
$74
52wk Range
$57.50 - $68.05
Volume
10,478,532
Market Cap
$176.12B
Enterprise Value
$163.55B
Trailing P/E
18.47
Forward P/E
11.87
Return on Assets
10.2%
Return on Equity
16.4%
52-Week Change
4.92%
Shares Outstanding
2.73B
Overview
Amgen
Gilead
Sciences
Pfizer
Teva
Johnson &
Johnson
WellPoint
Inc.
Wrap Up
Segments
$24.1B
Overview
Amgen
Gilead
Sciences
•Circulatory
disease
products
•Orthopedic joint
reconstruction
•Surgical
products
•Diabetes care
Pfizer
Teva
$15.5B
Consumer
•Anti-infective
•Antipsychotic
•Contraceptive
•Dermatology
•Gastrointestinal
•Immunology
•Neurology
•Oncology
Medical Devices
Pharmaceutical
$25.7B
Johnson &
Johnson
•Baby care
•Skin Care
•Neutrogena,
•Aveeno
•Wound Care –
Bandaid,
•Oral Care Listerene
WellPoint
Inc.
Wrap Up
Business Drivers
Value Drivers
Potential Risks
•Age Demographics
•R&D is 10% of sales
~$6.8B in 2011
•Growing Emerging
Markets
•Healthcare is growing in
other economies.
•Consumer Brands are
penetrating.
Overview
Amgen
Gilead
Sciences
Pfizer
•Failed / Stalled FDA
Approvals
•Political Healthcare
Reform
•Pressure from Generics
•Product Recalls
•Leadership Transition
• Price Pressure from
Insurance issuers and
government
Teva
Johnson &
Johnson
WellPoint
Inc.
Wrap Up
Financials
Earnings Statements
2011 Earnings – 14.0B
2013E Earnings – 15.5B
70
Sales to
customers
Cost of
products sold
SG&A
60
Dollars - Billions
50
40
30
R&D
20
Interest
10
Overview
Amgen
Gilead
Sciences
Pfizer
Teva
Johnson &
Johnson
2013
2012
2011
2010
2009
2008
2007
2006
0
Net earnings
WellPoint
Inc.
Wrap Up
Return on Equity
Overview
Amgen
Gilead
Sciences
Pfizer
Teva
Johnson &
Johnson
WellPoint
Inc.
Wrap Up
Valuation - DCF
Valuation - DCF
Overview
Amgen
Gilead
Sciences
Pfizer
Teva
Johnson &
Johnson
WellPoint
Inc.
Wrap Up
Valuation - Ratios
Price
Overview
Upside
Current Price
$64.42
DCF Projection
$70.15
8.9%
Ratio Analysis
$78.36
21.6%
Price Target
$74.00
14.9%
Amgen
Gilead
Sciences
Pfizer
Teva
Johnson &
Johnson
WellPoint
Inc.
Wrap Up
Sum of Parts
Synergies could
exist between the divisions which
would not be captured by this valuation.
Overview
Amgen
Gilead
Sciences
Pfizer
Teva
Johnson &
Johnson
WellPoint
Inc.
Wrap Up
Sell Recommendation
Q:
Johnson and Johnson looks OK; why sell?
A:
1. Two divisions are very similar to other SIM holdings.
•
•
•
•
•
14.9% Upside
3 Divisions Pool Risk
Defensive Stock, β≈0.56
Pharmaceutical ↔ Pfizer
Consumer ↔ TEVA
2. DCF is very sensitive to growth and discount rates.
3. Could capture another industry and stock within
the sector that has a better upside.
Overview
Amgen
Gilead
Sciences
Pfizer
Teva
Johnson &
Johnson
WellPoint
Inc.
Wrap Up
Investor Basics
Current Price
$66.11
1yr Target Estimate
52wk Range
$56.61 - $81.92
Volume
2,875,844
Market Cap
$23.11B
Enterprise Value
$14.46B
Trailing P/E
9.12
Forward P/E
7.79
Return on Assets
5.37%
Return on Equity
11.24%
52-Week Change
-0.54%
Shares Outstanding 349.60M
Overview
Amgen
Gilead
Sciences
Pfizer
Teva
Johnson &
Johnson
WellPoint
Inc.
Wrap Up
Business
Overview
Amgen
Gilead
Sciences
Pfizer
Teva
Johnson &
Johnson
WellPoint
Inc.
Wrap Up
Business Drivers
Value Drivers
Potential Risks
•Aggressively Drives Value-based
Healthcare
•Age Demographics
•Growing Need to administer /
Deliver Healthcare
•Growing Medical Complexity
•New Treatments
•Growing Providers
•Consulting to Governments and
Businesses looking to reduce their
cost.
Overview
Amgen
Gilead
Sciences
Pfizer
•Political Reform
•Nationalized Healthcare Plan.
•Medicare / Medicaid.
•End of Life Care $$$ are
increasing.
Teva
Johnson &
Johnson
WellPoint
Inc.
Wrap Up
Financial Projections
Earnings Statements
50
Sales to
customers
Cost of
products sold
SG&A
40
R&D
30
Taxes
20
Interest
10
Net earnings
70
Dollars - Billions
60
Overview
Amgen
Gilead
Sciences
Pfizer
Teva
2013
2012
2011
2010
2009
2008
0
Johnson &
Johnson
WellPoint
Inc.
Wrap Up
Return on Equity
Overview
Amgen
Gilead
Sciences
Pfizer
Teva
Johnson &
Johnson
WellPoint
Inc.
Wrap Up
Valuation - DCF
DCF Valuation Sensitivity
Overview
Amgen
Gilead
Sciences
Pfizer
Teva
Johnson &
Johnson
WellPoint
Inc.
Wrap Up
Valuation - Ratios
Price
Overview
Amgen
Upside
Current Price
$66.11
DCF Projection
$82.3
24.9%
Ratio Analysis
$84.56
27.5%
Price Target
$83.00
25.5%
Gilead
Sciences
Pfizer
Teva
Johnson &
Johnson
WellPoint
Inc.
Wrap Up
RECOMMENDATION SUMMARY
AMGN
Market Value
JNJ
414,373 441,597
PFE
TEVA
WLP
GILD
306,020
370,148
0
0
% of SIM
3.6%
3.9%
2.7%
3.27%
0%
0%
Current Price
67.63
64.46
21.28
44.59
66.11
45.26
Target Price
77.20
74.00
28.01
62.95
94
54.5
Upside
14.1%
14.8%
31.6%
41.1%
25.5%
20.4%
Recommendation
SELL
SELL
BUY
BUY
BUY
BUY
BP Change
-360
-390
+60
+23
+347
+320
0%
0%
3.3%
3.5%
3.47%
3.2%
Ending Allocation
Overview
Amgen
Gilead
Sciences
Pfizer
Teva
Johnson &
Johnson
WellPoint
Inc.
Wrap Up