Healthcare Sector Analysis
Alexander Bishop
Justin Gibbs
Bethaditya Winarno
Jie Zhang
Agenda

Healthcare Sector Overview

Business Analysis

Economic Analysis

Financial Analysis

Valuation Analysis

Recommendations

Q&A
Healthcare overview
A category of stocks relating to medical and healthcare goods or services, the
sector market capitalization is at $1.96 Trillion
Healthcare Industries
Sector Leading Companies
Company Name
Industry
Market Cap.
($ MIL)
JOHNSON & JOHNSON
Pharmaceutical
174000.000
PFIZER
Pharmaceutical
144000.000
MERCK & CO.
Pharmaceutical
113000.000
ABBOTT LABORATORIES
Pharmaceutical
83000.000
AMGEN
Biotechnology
57000.000
MEDTRONIC
HC-Equipment
47000.000
GILEAD SCIENCES
Biotechnology
42000.000
BRISTOL-MYERS SQUIBB
Pharmaceutical
41000.000
LILLY (ELI)
Pharmaceutical
39000.000
UNITEDHEALTH GROUP
HC-Managed Care
38000.000
SIM Holdings
Security
Amgen Inc.
Ticker
AMGN
CareFusion Corp.
Gilead Sciences Inc.
Johnson & Johnson
Co.
Teva Pharmaceutical
Industries Ltd.
%age Assets
2.65%
Eq shares out
995.000
CFN
0.88%
221.384
GILD
3.35%
899.925
JNJ
3.76%
2,759.100
TEVA
3.64%
923.960
S&P 500 Weight
Consumer Discretionary
3.72%
3.41%
2.98%
Consumer Staples
9.67%
Energy
Financials
11.65%
18.80%
Health Care
Industrials
11.38%
Information Technology
Materials
10.51%
Telecommunication Services
14.71%
13.17%
Utilities
Cash
Dividend Receivables
2.32%
SIM Weight
0.08%
3.27% 2.94%
3.46%
6.99%
Consumer Discretionary
11.96%
Consumer Staples
Energy
Financials
Health Care
19.04%
11.90%
Industrials
Information Technology
Materials
Telecommunication Services
11.37%
12.36%
Utilities
Cash
Dividend Receivables
14.30%
Sector Performance
Top 5 Performers
Berkshire Hathaway Inc.
15.52%
Gilead Sciences Inc.
11.56%
NCR Corp.
7.55%
TCF Financial Corp.
7.49%
Amgen Inc.
3.38%
YTD: -1.65% QTD: -1.65%
Business Analysis
Phase of Life Cycle
Key Driver: Demographic
Older Population by Age: 1900-2050 - Percent 60+, Percent 65+, and 85+
30%
25%
20%
15%
10%
% 60+
% 65+
5%
0%
1900
1910
1920
1930
1940
1950
1960
1970
1980
1990
2000
2010
2020
2030
Aging of US population, 16% of US population
will be 65+ older by 2020.
2040
2050
Porter Five Forces Analysis
• Rivalry: Highly concentrated in large companies,
competition between largest companies
• Supplier Power: Low
• Substitutes: Generic drugs
• Buyer Power: Low, buyers are individual
consumers
• Barriers to enter: long & costly FDA approval (10
years on average), high R&D cost, R&D process is
very difficult and tedious
Patent Expiration
• Patents grant exclusive rights for 20 years
• Generic drug is a low cost substitute
• Increasing use of generic drugs
• Substantial loss in market share
Economic Analysis
Positive trends
•
•
•
•
•
•
Aging population and the baby boomers
People living longer with chronic disease
Obesity and diabetes epidemics
Technological advances
Global reach of disease
Personalized medicine
US Projected Population from 2010-2050
450,000
400,000
Projected Population
350,000
300,000
2000
250,000
2010
2020
200,000
2030
2050
150,000
2040
100,000
50,000
0
..TOTAL
..0-4
..5-19
..20-44
Age Range
..45-64
..65-84
..85+
No Data
<10%
10%–14%
15%–19%
20%–24%
US Obesity Trend
25%–29%
≥30%
Trends in National Health Expenditure
Healthcare Reform
• Could be beneficial to the industry
because more people will be insured and
able to seek out medical attention.
• With more people insured, the number
of medical procedures performed should
increase.
• The sector has been oversold out
Financial Analysis
EBITDA MARGIN
E B IT DA MAR G IN
60.0%
Healthc are
50.0%
B iotec h
40.0%
Dis tributors
30.0%
P harma
20.0%
E quipment
10.0%
S + P 500
0.0%
2005
2006
2007
2008
2009
NET PROFIT MARGIN
Net P rofit Marg in
35.0%
Healthc are
30.0%
B iotec h
25.0%
Dis tributors
20.0%
P harma
15.0%
E quipment
10.0%
S + P 500
5.0%
0.0%
2005
2006
2007
2008
2009
RETURN ON EQUITY
R eturn on E quity
35.0%
Healthc are
30.0%
25.0%
B iotec h
20.0%
Dis tributors
15.0%
E quipment
10.0%
S + P 500
5.0%
0.0%
2005
2006
2007
2008
2009
REVENUE GROWTH
R evenue G rowth
14
12
10
Healthc are
8
S + P 500
6
4
2
0
2004-2005
2005-2006
2006-2007
2007-2008
EARNINGS PER SHARE
E PS
100
80
60
Healthc are
40
S + P 500
20
0
2005
2006
2007
2008
2009
C as h F low/ S hare- S +P
CASH FLOW/ SHARE
160
150
140
130
120
110
100
90
80
2005
C as h F low/ S hare- Healthc are
40
35
30
25
20
2005
2006
2007
2008
2009
2006
2007
2008
2009
Valuation Analysis
Current Valuations
•Below the median in every category
•Valuations will revert to the mean after restored market confidence
•Not due to a change in industry fundamentals
•Future drivers of Revenue look promising
•Demographics
•Penetration in emerging markets
•Healthcare expenditures up
Relative to S&P 500
Recommendations
Recommendations
Add 38 basis points to increase current weight to
150 basis points overweight
Reasons:
1.Constant revenue growth, outperforming
S&P500
2.Short-term modest economic growth
3.Healthcare reform
4.Patent expiration
Questions?