PSYS Psychiatric Solutions
Risks





Opportunities
 Strong management
 Growing business- aging population
 could be bought out
 very specialized makes easy growth
model
 government laws
growth might already be in stock price
focus only on inpatients
lack of knowledge of company
Not focused on stock value
mainly paid by govt in insurance (shift in
govt)
 too many acquisition
 complicated revenue generation
 government laws
1.
What are the government laws that may affect PSYS both positively and negatively? Consider
all possible situations.
The mental health parity act (1996) it requires employers that employ more than 50 workers and
offer group health insurance to offer coverage for mental illness equal to the lifetime and annual
caps set for physical illnesses. The law took effect in 1998, but it has a number of loopholes and is
described differently from state to state (today 33 states enforce this law).
Loopholes:
a. the federal law covers only lifetime and annual limits
b. number of inpatient days and outpatient treatments do not have to equal coverage for
physical medical needs
c. federal legislation does not cover substance abuse/chemical dependency
d. If employers believe it will push insurance costs over 1 percent they can be exempt.
e. the law only applies to groups health plans that already offer mental health benefits.
OPPORTUNITY - more Americans are covered by a behavioral managed
health care plan and so there is a rise in demand for PSYS' services
RISK: it might nont be able to keep up with this demand and
it can only provide inpatient services (this might limit it).
2.
How much do the economics conditions affect PSYS and the industry? And what are the
affects of extreme situations? (i.e. recessions)
PSYS's performance seems to be consistent with economic conditions. Therefore, in the case of a
recession, both the industry and PSYS would suffer.
3.
What makes PSYS different from its competitors?
The biggest difference between PSYS and its competitors is that PSYS is almost entirely focused on
inpatient behavioral health services, whereas its competitors provide a more diversified range of
services. It's the leader in inpatient behavioral managed health care.
4.
What does management focus on? (i.e. finance)
Currently, management is focusing on expanding revenues through intense marketing/promotion fo
the facilties. It also wants to increase profitabilty by increasing operating efficiency. They hope
to increase operating efficiency by bringing facilities into a group-purchasing cooperative and
attempting to optimize staff ratios and total compensation expenses.
5.
What is PSYS's source of revenue? Please give percentages?
94.8% of revenue: inpatient behavioral healthcare facilities
division; 5.2% of revenue: inpatient management contract division
6.
What is PSYS's market share of inpatient, outpatient, others, etc.?
It has 18% of national market share in the inpatient behavioral
health services industry
7.
What is PSYS's acquisition growth vs. organic growth? Give percentage of each.
I cannot find exact percentages of PSYS's acquisition growth vs. organic growth but it's website
does inidicate that it prioritizes organic growth over acquisitions: "PSI's strategies for consolidating
the industry depend first on producing organic growth in the facilities the company already owns
and operates...our second channel for industry consolidation is through the selective acquisition of
both single and multi-facility operations". However, it did not state how much of its growth was
attributable to acquisitions/organic growth.
NCMI National CineMedia
Risks
Opportunities
 90% revenue in risky
 Movie advertisement increasing industry
 advertiser’s contract
 new market
 depend on film industry
 growing revenue from advertisements
What are the actual vested interests of its
What contracts does NCMI have from
parent companies AMC and Regal?
advertising companies? (i.e. Coca-Cola)
NCMI’s founding members hold 55.2%
NCMI has several multi-year contracts
of the company and are contracted in 30with leading media companies to provide
year agreements to receive advertising
original content to feature in NCMI’s
material solely from NCMI. Thus, the
First Look entertainment package that it
founding partners are financially invested
provides theaters with to play before
in NCMI and also depend on the
films. This content typically consists of
services that NCMI provides. NCMI and
behind-the-scenes interviews or segments
its founding members’ interests are
relating to the making of upcoming films
aligned in that both aim to garner as
or television shows. Under the terms of
many viewers as possible to the theater,
these contracts, our content partners
but NCMI relies on the theaters itself to
make available to us original content
accomplish this and thus has little direct
segments and make long term
control over the audience it can provide
commitments to buy a portion of our
to advertisers.
advertising inventory.. Current partners
include Discovery Communications, Inc.,
Please give a breakdown of revenues. (i.e.
NBC Universal, Sony Pictures
from advertisements in lobbies and on
Entertainment, Turner Broadcasting
screen)
System Inc., and Universal City Studios.
NCMI’s agreements with content
Under their contracts with AMC, Regal,
providers and from concession
and Cinemark, these founding members
advertisements for First Look amounted to
are obligated to purchase the last 90
34.4% of total revenue for 2006. 90.7% of
seconds of First Look to satisfy their onrevenue was derived from advertisements,
screen advertising; these are used to
including the content included in First
advertise each theater’s beverage
Look, concession advertisements, and all
concessionaire.
national and regional advertisements both
in lobbies and on screen. Revenue from
Additionally, NCMI sells advertisements
CineMeetings and digital events form most
both nationally and locally. 77.2% of
of the remaining 9.3% of NCMI’s revenue.
advertising revenue comes from national
accounts across a variety of industries,
Please give examples of some other
including apparel / accessories,
companies with similar business model.
automotive, confectionary, credit card,
How cyclical are those companies and the
entertainment, personal care, retail,
industry?
telecommunications and video games, as
NCMI’s main competitors, Screenvision
well as branches of the armed forces. It
and Unique Screens follow a similar model,
works both with companies directly and
but are not publicly traded and are thus
through advertising agencies. The names
difficult to assess. However, as an
of individual advertisers are not
advertisement company, NCMI itself
disclosed.
admits that its revenue tends to be cyclical.
According to NCMI’s 10k, revenue is
How dedicated is NCMI to expanding?
typically lowest in the first quarter of the
NCMI realizes the potential for growth
calendar year as advertising clients scale
through expanding its network of theaters,
back their advertising budgets following
and plans on expanding its reach and
the year-end holiday season, and revenue is
geographic coverage through new theaters
highest during the summer and the holiday
added to its current clients and through
season when theatre attendance is normally
additional network affiliate agreements
highest. However, a weak advertising
with other theatre circuits. The mainly aim
market, the poor performance of films
to attract larger regional circuits in more
released in a given quarter or a disruption
metropolitan areas or in geographic areas
in the release schedule of films could affect
where NCMI does not have significant
results for the entire fiscal year and
market coverage. For example, in March
significantly affect quarter-to-quarter
2007, NCMI signed a network affiliate
results. Because results vary widely from
agreement with Goodrich Quality
quarter to quarter and may be
Theatres, a theatre operator with 269
unpredictable, our financial results for one
screens in Michigan, Indiana and Illinois.
quarter cannot necessarily be compared to
another quarter and may not be indicative
What comprises of the deal with AMC and
of financial performance in subsequent
Regal? Be specific.
quarters. These variations in our financial
NCMI has long-term service agreements
results could contribute to volatility in
with AMC, Cinemark and Regal, and
NCMI’s stock price.
multi-year agreements with several other
theatre operators. The agreements with
other theater operators grant NCMI
exclusive rights to sell advertising on their
theatre screens. The agreements with
AMC, Cinemark, and Regal grant exclusive
rights to NCMI to sell advertising and
meeting services and distribute
entertainment programming in these
theatres. These agreements consist of a 30year term, beginning after NCMI’s IPO in
2007.
What are the affects of its recent contract
with Loew's?
AMC and Loew’s theaters announced a
merger in 2005 that would go into affect
into 2006, in which Loew’s theaters would
adopt the AMC name. At the time of the
merger, Loews operated 198 theaters with
2,235 screens, which were brought into the
NCMI network after the merger. For
accounting purposes, NCMI’s operating
and pro forma results from this period do
not include the payments made by AMC to
NCMI for integration of these screens;
these payments would have amounted to
$9.6 million in 2006. The Loews/AMC
merger has expanded NCMI’s theater
network significantly.
How interest is NCMI in its financial
structure?
NCMI’s founding partners hold 55.2%
of the outstanding common membership
units of the company, while the other
44.8% is publicly traded, following
NCMI’s IPO in February.
Who are customers and what are the long
contracts?
Advertisers: addressed in question 1.
Theaters: addressed in question 4.
HCP Health Care Property Investors
Risks
 Large size confines growth
 REIT has limited cash having to give
away 90%
 litigation back out? Why?
 how much can grow
 REIT bubble?
Opportunities
 board and management focuses on
financials
 trust acquisition structure
 geographic diversity- 42 states
 established company- dodge barriers
 conservative balance sheet
 safer REIT b/c of healthcare as opposed
to others
1. What were the events that led to $42 high a month ago?
Last month, the firm reached its 52-week high of $42 due to the payment of a dividend of $0.45 to
shareholders. This dividend beat expectations as well as the one from 2006. This increased
consumer confidence and resulted in the surge in price. Additionally, previously the firm had been
selling assets from their portfolio, which resulted in large profits, thus fueling the increase in stock
price.
2. Why is the company having such large growth? What is fueling it and where does it plan on going
in the future?
The company is experiencing such large growth due to its aggressive investment strategy. Before the
increase in stock price, the firm had been selling off assets. Currently, the firm is aggressively
acquiring assets totaling to $449 million by March 31, 2007. HCP's offer to purchase Sunrise is also
an indication of its strategy to acquire properties as well as other REITS. For the future, HCP will be
continuing with its expansion nationwide in healthcare facilities. Their main goal appears that they
would like to acquire more properties in order to gain greater market share within the industry as
well as to diversify their portfolio even more. By acquiring successful REITs, HCP will have a
greater opportunity to acquire properties as well as firms that manage them well. Thus for the future,
their strategy is to expand outward and to expand quickly. With their expertise and experience in the
industry, they have the capabilities to utlize this expansion.
Currently, the price is around $34 due to the recent announcement of a lawsuit by Ventas. I feel that
this drop in price is merely a reaction to the news, but the target price of around $40 will be reached
in the long run. The lawsuit does not carry much merit and is more of a reaction from Ventas
against Sunrise as well for the premium paid on the acquisition.
GSK GlaxoSmithKline
Risks
Opportunities
 Loss of Advair end of ‘07
 HPV Vaccine
 Goldman Sachs downgrade
 No drug comprises of more than 15% of
Revenue
 Investing in R & D. R & D growth:
from 871 million to 980 million in latest
 P/E ratio (cheap)
quarter
 Profit margin has been increasing
 Impending patent expirations for GSK:
- Imitrex (migraine) 6/28/07
- Advair and Serevent (asthma) 2/12/08
- Lamictal (epilepsy, bipolar disorder)
7/22/08




Both Imitrex and Advair will be replaced;
Lamictal will not be an issue for another
year. No other pending patent
expirations.
“New Advair” in clinical trials – positive
results so far
Their pipeline is significant, with 158
projects in clinical development at the
end of February 2007.
Investing in R & D. R & D growth:
from 871 million to 980 million in latest
quarter
No major impending lawsuits.
GSK
PE Ratio
Industry
15.15
S&P 500
24.70
20.41
The P/E ratio is at a very comfortable
level. The stockholder is paying less for
GSK’s earnings. This has been a trend for
the past few years.
FLO Flowers Foods
Risks
 Seems to be at the peek of price chart
and might not go up
 20% sales with wal-mart
 In-put prices affect stock, corn prices
might go up
 Possibilities for negative health trends
(anti-carb)
 Is FLO trying to diversify its suppliers?
Investment Risk/Neutral: Looking at FLO’s
most recent Annual Report, I have not found
evidence that the company is trying to diversify
its suppliers. That said, looking at the 10K’s of
FLO’s competitors, it emerges that it is quite
common for a large retailer, such as Wal-Mart, to
account for 15-20% of a food retailer’s sales.
For example, Wal-mart accounted for nearly
16% of Sara Lee’s sales in fiscal 2006. It
accounted for over 13% of sales for Interstate
Bakeries and 14% of sales for Campbell Soup
Co. in 2006. FLO is right in this range as well, as
Wal-Mart accounted for 18.9% of sales in 2006.
Opportunities
 Historically well positioned
 Pick up on trends quickly
 Keep local brands
 Do well addressing Natures Own:
Organic trend
 How are the contracts with large
suppliers? i.e. Wal-mart
Investment Opportunity: Typically, the
relationships between bakeries and large retailers
are largely dependent on price, product quality,
and customer service performance. Specifically,
the relationship between FLO and Wal-Mart is
positive. It is important to consider the
inconsistency and risk of some of FLO’s
competitors. Given the recent bankruptcies
(Interstate Bakeries) and consumer demand
problems (Sara Lee) of several of FLO’s
competitors, even a slight increase in FLO’s
price would not make it a wise business move
for Wal-Mart to switch to a less consistent
supplier for a slight decrease in price.
Thus, in sum, it seems FLO’s
relationship with Wal-Mart is fairly standard for
the industry, and furthermore, because of the
unreliability of several of its competitors, FLO
enjoys an advantage in maintaining a strong
relationship with Wal-Mart, its biggest customer.
CMCSA Comcast Corporation
Risks
 Times Warner is better
 30% restriction
 Shifting to satellite
Opportunities
 Name Recognition
 Switching technology in Chicago from
Analog to Digital
1. What is going on with the 30% law?
Back in the early 90s, a regulation was placed by the FCC that limited the number of subscribers that
a single cable company could serve. Nevertheless, a federal court overturned this regulation in 2001,
telling the FCC to come up with new regulations for cable companies. The FCC has been operating
unofficially with this 30% cap since then, until it devises new guidelines. In February, Comcast,
which has about 27% of all cable subscribers, challenged the unofficial regulation, citing new
developments such as the Internet, cellular phones, P2P networks, satellite, and on-demand services
as signals that the market has changed and such caps are unnecessary these days. The FCC is
considering reinstating the cap, but even the National Cable Television Association is against it since
AT&T and Verizon are beginning to enter the market for video services and the FCC had allowed
large mergers in the telecom industry.
(-) If the new cap is put into place, Comcast would be unable to acquire or merge with large
companies in the industry and would even have to turn down subscribers if it bordered the cap. As
of right now, it is unclear whether or not the FCC will pursue this cap.
(+) Considering the fact that a federal court asked the FCC to come up with new regulations and the
markets do seem to be changing, it seems unlikely that this route will be fully pursued.
2. More Metrics (updated original ones as well)
Ratio
Price to Earnings
Forward P/E
Price to Sales
Price to Book
EBITDA
Market Cap
EV/EBITDA
PEG Ratio (5 yr expctd.)
Return on Equity
CMCSA
32.12
24.58
3.11
1.99
9.97B
84.92B
10.942
2.59
6.44%
TWC
38.31
23.86
3.01
1.50
4.45B
36.14B
11.19
2.32
4.26%
Industry
23.80
2.80
2.20
-
S&P 500
20.25
2.87
4.06
-
(+) With lower P/E and EV/EBITDA ratios compared to TWC, it may be that Comcast is slightly
undervalued compared to TWC.
(-) Nevertheless, TWC has lower Price to Sales, Price to Book, and PEG Ratios compared to
Comcast, obscuring the valuations of the two companies.
(+) Both of them nevertheless have higher ratios compared to the industry and the S&P 500, which
illustrates that investors are willing to pay a high premium for the companies.
(+) The return on equity, which measures a company’s profitability in terms of how much money
the company has made with the money shareholders have invested, is higher for Comcast than for
TWC, however, illustrating the profitability of Comcast over TWC.
(+) Although Comcast has a much higher market cap than TWC, it also has a higher EBITDA,
which illustrates profitability of the company without taking into account the potentially distorting
financial and accounting decisions made by the companies. Comcast’s large size in its particular
industry is a particular advantage.
3. How are the acquisition of Fandango and Patriot Media going to affect CMCSA?
(+) The acquisition of Fandango.com, a website that sells movie tickets, will enhance the new
website Comcast will have, Fancast.com. On this entertainment website, users will be able to search
for TV shows, movies, actors, actresses as well as watch the available video content. This will allows
users to find out when different shows are playing on TV or on-demand. By adding Fandango the
services offered by Fancast, users will have a more complete media/entertainment website. The deal
is purportedly priced at $200 million.
(+) Patriot Media is a cable company based in Princeton, New Jersey. The area is primarily upper
class, and Comcast will be paying a sizeable premium for its acquisition of the company. Ultimately,
the customers that are served by Patriot Media tend to be upper class, which is explains the
premium: Comcast hopes that these new subscribers will purchase some of its higher-end service
packages, allowing them to bring in higher revenues. The deal is priced at $483 million, making each
customer worth about $6,000 compared to the average $4,000 per customer of other cable
companies.
4. Where is the future of cable?
(+) While the media offerings available on the Internet and the entry of large telecom companies in
the industry appear to be signaling the end of cable, the industry nevertheless seems to be robust
with a lot of opportunity for growth. As long as cable companies continue to pursue the triple play
strategy – perhaps even add wireless/mobile services in the mix as well – and look to enhance its
HDTV services, the industry can continue to keep growing. The emergence of different video
outlets also emphasizes the different places to which cable companies can add their content. These
different outlets further provide various opportunities for advertising, generating more revenues. As
a result, the end of cable does not necessarily appear in sight, and the industry seems poised for
further growth and development.
(-) Nevertheless, because of new technology, users may not necessarily need to use cable anymore,
instead relying on the companies that produce the shows themselves to broadcast the shows on the
Internet or on a program such as iTunes.
CHL China Mobile Limited
Risks




Opportunities
Risk of state owned company
 Potential to build
Churn rate
 No competition
Falling revenue per subscriber
 Social affect of cell
What are the specific of customer's
 Size
contracts that causes such a high churn
 Government protection
rate? [Risk]
 Favorable metrics
I believe the high churn rate is partly due to the
 2008 Olympics
fact that China Mobile includes prepaid
 High penetration rate
subscribers in its numbers. These prepaid
 Growing middle class
subscribers are typically foreigners traveling
 How will CHL respond to changing
abroad or conducting short term business, so
technology?
[Opportunity]
they terminate services often. However, I have
3G networks are the nearest foreseeable
been unable to find specific information about
change in technology that CHL must
the contents of China Mobile's subscriber
respond to. According to an interview from
contracts. Both China Mobile and China
2006 with CHL's CEO, China Mobile plans
Unicom focus on obtaining customers versus
to upgrade to 3G networks for the 2008
returning a profit. (Why? See question IV.)
Olympics, and to control capital
expenditures, the company "will build out
 iv. Exactly to what extent will the state3G in some places where there is demand
ownership of CHL affect the company
for high-speed wireless data". The
financial and comprehensively in the
company does not yet foresee a need to
short and long run?
upgrade entirely to 3G since not all
[Risk]
customers will want or need 3G services.
Those who upgrade to 3G need only
In China, "only state-backed companies have
change their handsets, not their SIMM
the connections with state-owned banks to get
cards or phone numbers.
the investment needed for new projects", and

to keep these loans coming, CHL places a
greater focus on its number of users instead of
on turning a profit. This leads to deflation
despite a minimally competitive market. CHL
is 76% owned by the state. In the short run,
CHL will no doubt continue to return profits
simply because of volume, but there is some
uncertainty about CHL's stock price,
particularly if investors are skeptical about
CHL's priorities. (Of course, it's also important
to keep in mind that the government wants to
own profitable companies as well.)
iii. What are the specifics of the 2008 Beijing Olympics deal?
[Opportunity/risk]
China Mobile is the sole mobile communication service partner of the Olympics. China Mobile will
build TD-SCDMA networks in Beijing, as well as Olympic-co-sponsoring cities Tianjin, Shanghai,
Qingdao, Qinghuangdao, Shenyang and Hong Kong. In addition, China Mobile "will provide all
mobile communications networks and services to the Beijing Olympic Games, 2008 Paralympic
Games, the Beijing Organizing Committee for the 2008 Olympic Games (BOCOG), and the
Chinese Olympic Committee". China Mobile is also testing wireless local area networks (WLAN) for
the Beijing Olympics. Tests revealed that "the current WLAN technology 802.11i has big security
loopholes and is easy to attack"; China Mobile would be expected to assume some responsibility if
Olympic stories and media were stolen as a result. It is unclear what China Mobile is doing to
correct these security loopholes, however "Intel and IWNCOMM, a private Chinese company, have
separately developed 802.11i and WAPI to remedy safety defects."
ADI Analogue Devices
Risks
Opportunities
 Competitive nature of semiconductor
 Huge market share in 3G phones
 Taken advantage of many pros and
 Large company and devotion
might be factored in the industry
semiconductors
 High barriers to entry
to
1. Why cashflow is going down at certain points? Elaborate.
The cash flow dip comes from increased stock-based compensation, and a $254 million distribution
from the company's deferred compensation plan.
2. How are sells expanded in Asia ?
Analog Devices is a company entering China later than several of its competitors, but now nearly
half of its sales come from Asia. The company is harvesting the benefits from using the local design
and support team. Innovation is something related to culture. China is now a more open society, and
this transition is also bringing more creativity to the surface.
3. More information on the cyclical pattern of stocks. The cyclical pattern of the semiconductor
industry is inevitable. The semiconductor industry is highly sensitive to the business cycle and a
semiconductor company’s period of economic prosperity is characterized by higher revenues and its
downturns and contractions will involve lower revenues. Any semiconductor company demonstrates
this cyclical pattern. According to El Segundo, California-based market research firm iSuppli, 2007
will see the peak of the semiconductor industry’s growth cycle and double-digit growth is expected.
4. Is the industry slowing in long run?
Although the Semiconductor Industry Association said that it seemed that the semiconductor
industry has slowed down, there is still an on-going for semiconductors. The off-shoring to Asia is a
great opportunity for growth. China is the third largest country market in the world today for
semiconductors, and enjoys the world’s highest growth rate. By 2010, China is predicted to be the
world’s second largest country market for semiconductors, behind only the United States.
Semiconductors are the second largest U.S. export to China and China’s number one import. The
World Semiconductor Trade Statistics foresees a continuously growing demand for electronic
products such as PCs, digital consumer appliances and mobile communications, enhanced by the
increase of semiconductor content per installed system.
The bad news despite tremendous growth expected in 2007, the semiconductor industry this year
will only grow 10.6 percent due to changing dynamics of business—below historical market peaks.
5. Do you expect continual growth in long run?
Yes, there is increased demand for electronic entertainment. The company’s signal processors bridge
the so-called “expectational gap” between what we see and touch and thus, electronic entertainment
demand for this fuller experience will continue to rise.
Experts do acknowledge that growth will be slightly below average, but in general the
semiconductor industry has seen balanced growth in the past few years and this is expected to
continue. The following is research from In-Stat research firm.



The computer segment will account for 42% of the worldwide semiconductor market through
2011.
Higher-than-average growth is expected in the automotive and consumer markets, reaching
8.7% and 18.4% of total semiconductor revenue by 2011, respectively.
The communications segment is expected to grow at above-average rates and maintain its
second place ranking.
6. What are the risks of ADI's increased interest in China ?
China, in general is among 10 countries/regions with the lowest investment risks. Although Analog
Devices’ products are used regularly in China’s mobile phones, and the Chinese government is
closely involved in China’s biggest mobile phone company, China Mobile, the country in general is
becoming more open to investments. The country, thus, is pretty low risk.
7. Are there any plans to expand in other continents?
In Europe, Analog Devices accounts for about one fifth of the company’s worldwide revenues and
worldwide work force. The company has a manufacturing facility in Limerick, Ireland, and seven
design centers in Denmark, England, Scotland, Ireland and Spain. European client references
include main telecom manufacturers Alcatel, Ericsson, Nokia, Sagem and Siemens, automotive
equipment manufacturers such as Autoliv, Bosch Automotive and Siemens VDO, as well as
consumer references such as Harman and Philips, and a variety of industrial clients including ABB,
Agilent Technologies and Rhode & Schwarz. (from analog.com)
CVS CVS/Caremark Corporation
Risks
 The impact in one year
 Affected by litigations and regulations
Opportunities
 Positioning in OTC pharmacy with aging
baby boomers
 New rewards initiative
 Regarding Wal-Mart, I think CVS is a
much safer bet, though I do like Wal-Mart
as a stock. As its clientele is mostly lowermiddle income, rising oil prices and
concerns about the housing market are
more likely to affect sales at Wal-Mart
than they are to hurt sales at CVS, which
derives 95% of its revenue from retail
pharmacy. Wal-Mart faces the additional
risk of litigation, much more so than CVS,
as it’s such a big target- note the recent
news
about
possible
surveillance
operations.
Moreover, Wal-Mart has
come under fire for paying its employees
low wages and not offering adequate
healthcare coverage- one big risk for WalMart is unionization. Finally, Wal-Mart’s
same-store sales in the U.S. have been
very poor of late, and as Wal-Mart already
has a very large market presence, its
opportunities for store expansion are
limited. While I do think management
has made motions to address this issue of
U.S. sales growth, it is still a concern. On
the plus side, Wal-Mart has been seeing
great growth in the international sector,
which has really compensated for the
poor U.S. growth.
However, this
international expansion is not without its
risks; Wal-Mart’s attempts to expand into
South Korea and Germany were both
disastrous.
 To back up my claim about CVS’ past
good performance in mergers &
acquisitions, I would point to two specific
events. The first was the 1997 acquisition
of RevCo D.S. for $2.8B. The acquisition
added more than 2500 stores to the chain-
the largest acquisition in the history of the
U.S. retail pharmacy industry. The second
was the 2004 acquisition of 1268 Eckerd
Stores and Eckerd Health Services, a PBM
and mail-order pharmacy business, from
J.C. Penney for $2.15B. CVS’ stock was
at 21.32 after the announcement that the
Eckerd acquisition was complete and the
stock steadily climbed afterwards (as
shown below). While this is on a lesser
scale than the merger with Caremark, it
shows CVS was capable in the past of
integrating another PBM and mail order
pharmacy business. Additionally, there
have been many other smaller acquisitions
that CVS has successfully executed in
order to become a dominant figure in the
industry.
As to existing store locations, CVS has 6.208 stores as of March 31, 2007, located in 38 states.
Florida has the most stores, with 668, followed by Texas with 476, New York with 426, California
with 376, Pennsylvania with 362, and Massachusetts with 329. The company, initially confined to
the Northeast, has grown through acquisitions into a national chain. Most recently, CVS acquired
Osco Drug and Sav-On Drugs in 2006, giving the company a bigger presence in the Midwest (an
area formerly controlled by Walgreens, which is based outside of Chicago) and in the southwest,
particularly in fast-growing southern California. In 2004, the acquisition of Eckerd drug stores gave
CVS a greater presence in Florida and Texas. CVS has this to say about site selection, “We look for
highly visible locations in a high traffic area that is easily accessible and is in a trade area of at least
18,000 people. We prefer sites that can support a freestanding store with drive-thru capability,
between 1.5 to 2 acres, with parking for at least 80 vehicles.” In 2007, CVS plans to open 275 new
or relocated stores, adding 3% to its total retail square footage.
Walgreens has a total of 5,693 stores located in 48 states and Puerto Rico. Of these, 711 are in
Florida, 567 in texas, 519 in Illinois, and 454 in California. In fiscal 2007, it plans to open a net
increase of 400 stores. It plans to expand into California, Texas, North Carolina, New York, and
Florida.
CVS engages in the mail order pharmacy business both through PharmaCare, its pre-established
PBM, and now, Caremark. Through its PharmaCare subsidiary, CVS operates strong mail order,
specialty pharmacy, and pharmacy benefits management businesses. In fact, PharmaCare generated
$3.7 billion in revenue in 2006, a 25 percent increase over the previous year. PharmaCare's mail
order business continued to thrive in 2006, with prescription volumes up nearly 10 percent.
Caremark operates 7 large automated mail service pharmacies in the country, with 21 smaller mail
service pharmacies devoted to dispensing specialty medications used to treat chronic or genetic
diseases. In 2004, mail service made up 31.07% of total revenues; in 2005, 35.14%; and in 2006,
34.15%. Mail service revenues increased 44.6% from 2004 to 2005 and 8.2% from 2005 to 2006.
Claims processed by mail service increased 24% from 2005 to 2006. Significantly, in 2006, revenue
per claim processed was $198.86 for mail and only $44.17 for retail. As the numbers show, the mail
order pharmacy is very lucrative, especially in terms of specialty pharmacy, which dispenses a smaller
number of more expensive medications.
BABY Natus Medical
Risks
Opportunities
 Slow growth
 Might be acquired
1. Why is management so good? They've
 Income was negative for that last two years
 1. Why is BABY public when everyone only been there for 1-4 years.
else is private?
One of the reasons that BABY is public when
everyone else is private is the nature of the
sector it is in. With high costs (associated with
regulation and legal factors) and a relatively
limited market for companies that are not yet
well established, barriers to entry in the market
are high for the medical appliances and
equipment sector1. The push for exciting and
efficient new products also means that R&D
efforts are crucial and the costs are likely to be
continuously large. Some companies, such as
Welch Allyn, choose to deal with that by
remaining private, other companies try to grow
and then attract the attention of some larger
company that holds a wider range of products.
While this puts Natus in a prime position for
taking advantage of the needs of its niche
markets, it does also mean that as the company
grows it is still in danger of being undercut by
other larger companies (such as Viasys,
Medtronic, or even GE) if it does not continually
produce innovative and safe new technologies.

More information about acquisitions
in the past.
BABY’s most recent acquisitions include Biologic (diagnostic hearing and EEG products for
$66 million), DELTAMED SA (EEG products
to deal with sleep disorder and neurological
dysfunction diagnostics in the European market
for $4 million), and Olympic Medical (NICU
One of the reasons the management is
strong and expected to do well with this
company is experience in the healthcare field,
especially in terms of working with a smaller
company looking to grow in a steady and
productive way. For example, Jim Hawkins, the
current CEO, worked with Invivo from 1985 to
2004. Invivo (under the name Intermagnetics)
started as a small company focusing on MRI
products to one of the leading manufacturers of
MRI systems and related monitoring devices
sold directly to hospitals. In 2006, Invivo was
acquired by Philips Medical as part of the Philips
Electronics empire3. Similarly, while Dr.
Christopher Chung, MD (Vice President Medical
Affairs, R&D, Engineering) has only worked in
his current capacity with Natus since 2003, he
consulted for the company since 2000. Before
that he worked in the clinical setting of a hospital
and as an engineer at Nellcor, another medical
device manufacturer4. Thus, he is familiar with
all aspects of his job position.
While
other
members
of
the
management team may not have worked only in
the health care field, they all have experience
with medical device companies in their
backgrounds. Furthermore, the management
team is often cited by analysts as being so strong
because of their commitment to a conservative
financial policy which includes measures to keep
costs down as much as possible5. Thus, they are
trusted to make decisions that in the end will not
Prohibitive Barriers to Entry. Standard & Poor’s Industry Survey / Healthcare: Products and Supplies. February 22, 2007.
“Philips to Acquire Intermagnetics (Invivo).” About Us. http://www.igc.com/invivo/about%20us.aspx?NewsID=27.
4 Biography. Investor Relations. http://investor.natus.com/phoenix.zhtml?c=129675&p=irol-govBio&ID=93167
5 Natus Medical vs. Under Armour: Natus Medical. http://www.fool.com/investing/general/2007/03/16/natus-medical-vsunder-armour-natus-medical.aspx
1
3
products for $16.6 million). The company’s
other major acquisition, Fischer-Zoth, was
completed in the fall of 2004 to expand its
hearing diagnostic systems, especially in the
European markets. It produced a small dip in the
company’s stock price, but its relatively low
impact on the balance sheet (charges of about $1
million) meant that the company quickly
recovered from the purchase. While this is the
first time the company has made acquisitions of
this magnitude, this is also the first time that the
company has had the capabilities to do so,
posting record revenues since shortly after its
first major acquisition.
destroy the company’s chances for survival or
growth. (This strategy has been called into
question recently and is discussed above in
question 3).
More information of BABY products and
synergies.
As stated in the stock pitch, BABY’s five
major product categories are Newborn Hearing
Screening, Diagnostic Hearing Assessment,
Monitoring Systems for Neurology, Diagnostic
Sleep Analysis and Newborn Care. Many of their
products are very specific to the newborn or
child patients, such as their Save the Gonads
shields which are meant to protect a baby’s
 Regarding the recent stock price drop reproductive organs during frequent x-rays6. As
the company has expanded however, some of
these products have been modified to be utilized
Following the company’s first quarter earnings
rd
for a variety of patients. For example, their
report released on Thursday, May 3 , the
Papoose Board line7 is a series of immobilizers
company faced a significant drop in its stock
price down to about $15.37 as of the closing bell to help keep agitated patients in place during
exams and procedures that now comes in a
on Tuesday, May 8th2. Analysts attribute this
variety of sizes to fit all patients from the infant
drop to the fact that the company increased
stage right through adulthood.
costs and also missed its EPS estimates for the
One of the areas where the company has
quarter by 1 cent ($.07 instead of $.08). While
seen
the
most success and growth is in the
this is some cause for concern, the drop seems
to be leveling off and certain factors suggest that Diagnostic Hearing Assessment category. Not
this may be soon overcome by the company for only does the company produce a variety of
diagnostic tools, it has also expanded to create
the following reasons:
data transfer and data management programs8
for the computer to directly link to these tools.
II. Costs were going up for good reasons.
Thus, not only can doctors diagnose a potential
Much of the increase had to do with
hearing problem, they can also monitor its
growing R&D costs. Considering the
company’s recent acquisitions and the fact progress and store data on that progress. Similar
systems exist in their Neurology Diagnostic
that new products are the lifeblood of the
Systems and may be the basis for further
sector’s profits, these rising costs may
expansion of monitoring technologies for a
signal strong progress for the company in
variety of ailments.
the near future.
When making acquisitions, BABY looks
III. While the EPS estimate was off by 1 cent,
for companies with solid product lines that may
it was still positive and made a huge jump
Yahoo Finance.
Pediatric and Newborn Care. http://www.natus.com/index.cfm?page=products_1&crid=40
7 Papoose Boards: Pediatric and Newborn Care.
http://www.natus.com/index.cfm?page=products_1&crid=109&contentid=202.
8 Hearing Screening. http://www.natus.com/index.cfm?page=products_1&crid=17
2
6
from the negative $.25 EPS for the same
quarter of the previous year. Thus, the
company seems to be climbing out of its
financial instabilities from its series of
acquisitions in the previous year.
IV. Other than its EPS, the company posted a
healthy set of financial information.
Revenues were listed as $27.1 million,
marking a 40% increase from the same
quarter of the previous year ($19.4 million).
Profits, as stated before, were positive for
the quarter at $1.5 million. Revenue
guidance for the year ahead was also raised
to $117.5 million to $119 million with EPS
increasing from $.49 to $.52.
V. Considering the small size of the company
and the minimal miss of the EPS estimates,
BABY’s management team could have
easily had its accounting department use
some extra parameters to have the EPS hit
the mark. Instead, they chose to be honest
and announce the actual outcome even
though it was less than ideal. This speaks
to the integrity of the management team
and the confidence they have that this is a
temporary setback for Natus.

expand the specific areas of usage (or even
regions) for their products while still sticking to
the main focus of newborns and younger
patients. Its newest acquisition, Olympic
Medical, focuses on creating products of the
neonatal intensive care unit of hospitals (NICU).
While expanding Natus into new areas of patient
care (intensive care), this acquisition still
provides services geared at the newborn patient
sector. Thus, when the acquisition was
completed Natus was able to leave Olympic’s
product lines, operations, and R&D prospects in
place and more easily integrate the company as
yet another set of product lines within BABY.9
While I could not find specific information on
how much of the company’s revenue comes
from acquisitions and how much from its core
businesses, the deep level of integration between
the company and its acquisitions suggests that
any discrepancies become unimportant rather
quickly. Furthermore, the high level of R&D
spending that BABY is doing suggests that it
continues to develop its product lines and
expand its technologies within all of its product
categories, original and acquired.
How are the growths in niche markets?
The medical product and supplies
industry in general (which includes the
equipment and appliances sector) has been doing
fairly well and is expected to improve in the
remainder of 2007 as patient populations
increase. Niche expansion in particular seems to
have started picking up speed in 2006 and looks
to continue in 2007. Some of the growth has
been due to specialized niche companies joining
forces10 (much like BABY’s last few acquisitions)
in order to more actively compete with some of
the industry giants. Furthermore, such expansion
into foreign economies (as Natus as been doing
Natus Medical to Acquire Olympic Medical. October 16, 2006. http://investor.natus.com/phoenix.zhtml?c=129675&p=irolnewsArticle&ID=916403&highlight=
10 M&A May Focus on Niche Players. Standard & Poor’s Industry Survey / Healthcare: Products and Supplies. February
22, 2007.
9
with its acquisitions in Europe) is also expected
to bode well for the industry, especially in terms
of high tech products like the ones that BABY
creates for diagnostic and monitoring purposes11.
Finally, the fact that BABY is successfully
negotiating long-term contracts for its specific
niche products means that the company will
have guaranteed demand for its niche products
(and new off-shoots of these products) in an
industry that is marked by large-scale contracts
instead of individual purchasing by physicians
and medical specialists.
Medical technology has a global market. Standard & Poor’s Industry Survey / Healthcare: Products and Supplies.
February 22, 2007.
11
AXP American Express
Risks
 Is American express has strict
 Revenue growth decreases
 Not accepted everything
 Reacts to economy
Opportunities
 Expanding from high income to low
income markets
 New protection act
 Brand name and long history
AMERICAN EXPRESS
Revenues
The Company has four operating segments: Global Network & Merchant Services, U.S. Card
Services, International Card & Global Commercial Services and Corporate & Other. The bulk of its
revenues comes from its card services. For this reason, its biggest competitors are other card
services such as MasterCard, Discover, and Visa.
For the three months ending March 31 2007, American Express Company's revenues rose 14% to
$7.63B. Net income from continuing operations rose 22% to $1.07B. Revenues reflect an increase in
discount income, higher travel commissions & fees, an increase in securitization income and higher
other income. Net income also reflects promotion, rewards & card member expenses and lower
international banking & other provision for losses.
Revenue drivers, such as card accounts and spending volume, should remain robust in an
expanding economy with an increasing volume of consumer spending.
Competition and Comparative Advantage
American Express has a successful competitive advantage over other card service providers in the
form of its "closed-loop" structure. This means that it executes each stage of a card payment
transaction. In this way, American Express has a better image of its consumer’s spending behavior.
This allows the company to provide better value for merchants, issuers, and higher end consumers
throughout transaction processes. For this reason, American Express can drive a higher spending
volume growth over its competitors.
MasterCard, Discover, and Visa perform the “open-loop” structure, not allowing for superior
maintenance and management of their card sector.
Below, you can see revenues and net income exceeding its competitors.
DIRECT COMPETITOR COMPARISON
Market Cap:
AXP
75.16B
Pvt1
N/A
MA
18.51B
Pvt2
N/A
Industry
749.70M
Employees:
Revenue (ttm):
EBITDA (ttm):
Oper Margins (ttm):
Net Income (ttm):
EPS (ttm):
65,400
27.98B
9.43B
30.34%
3.92B
3.174
N/A
N/A
N/A
N/A
N/A
N/A
4,600
3.50B
899.83M
22.87%
138.35M
1.016
6,0001
1.16B1
N/A
N/A
83.20M1
N/A
788
342.47M
117.66M
32.08%
30.87M
1.03
Pvt1 = Discover Financial Services LLC (privately held)
MA = Mastercard Incorporated
Pvt2 = Visa International (privately held)
Industry = Credit Services
1
= As of 2005
America Express Earnings Growth
In-Depth Earnings Estimates
Current
Quarter
Jun 07
Average Estimate
Number of Analysts
High Estimate
Next Current Year
Quarter
Feb 07
Sep 07
Next Year
Feb 08
$0.86
$0.86
$3.45
$3.85
14
13
16
13
$0.90
$0.88
$3.56
$4.00
Low Estimate
$0.78
$0.77
$3.21
$3.56
Year Ago EPS
$0.78
$0.76
$3.00
$3.45
10%
13.05%
14.93%
11.68%
Growth Rate
Morgan Stanley Discover spin-off
The decision to pursue a Discover Card spin off reflects the company's attempt to be an integrated
securities firm and to create networking to provide growth opportunity. This, however, does not
seem to pose as a threat to American Express, having partnerships with various firms including
Citigroup, and having a uniquely diversified product and rewards offerings.
INFY Infosys Technologies
Risks
 Highly competitive industry
Opportunities
 Strong company
 Strong brand name
 Global delivery model
 Economies of scale
 Market leader
1. More information on management of INFY.
Inofsys is headed by CEO and co-founder Kris Gopalakrishnan. Kris holds a Masters of Science in
Physics and a Masters of Technology in Computer Science from the Indian Institute of Technology.
All members of the management team are completely competent and most have degrees in
Computer Science. Many are members of the founding team and have a strong entrepreneurial
drive. The team also puts a focus on bringing in fresh new ideas for the company. A former CEO
was known to not let anyone over the age of 25 into planning and brainstorming meetings.
Detailed profiles for all members of the management can be found here:
http://www.infosys.com/about/management_profiles.asp
This is a plus for investors
2. What are the affects of headquartering in India? Give an analysis of the Rupee.
Over the past year, there have been large fluctuations in the dollar-rupee exchange rate. The rupee
has been steadily gaining in value in comparison to the dollar. This is a downside to investing in any
Indian firm. However, as history has shown, the company has been well able to weather rupee
fluctuations in the past year and has managed to make above expected profits despite them.
Estimates show that about half of the revenue of Indian software companies comes form the United
States. Therefore, even if the rupee appreciates, the companies still have a steady reliable source of
income.
3. Why did the stock price drop in the past three some as compared to competitors?
I was still not really able to find any information on this. I looked at some of the older news
articles from the period but none offered any insight. I don't know where else to go for answers.
4. If the industry undergoing consolidation, what are the affects on INFY?
This is good for INFY. Since the company is already well established and diversified, it will be easier
for it to make acquisitions of smaller companies while at the same time holding on to its current
customers. The S&P industry report for the software industry predicts that larger, well established
companies, like Infosys, will have an advantage.
5. What is the difference between custom, enterprise, open-source software and relationship to each other?
from Wikipedia:
custom : a type of software developed either for a specific organization or function that differs
from other already available software (also called off the shelf software). It is generally not targeted
to the mass market but usually created for companies, business entities, and organizations. Allows
for closer relationship between manufacturer and customer but also incurs higher cost and time of
production
enterprise: is software that solves an enterprise problem (rather than a departmental problem) and
usually enterprise software is written using Enterprise Software Architecture. Due to the cost of
building what is often proprietary software only large organizations attempt to
build software that models the entire business enterprise and is the core system of governing the
enterprise and the core of business communications within the enterprise.Enterprise level software
is software which provides business logic support functionality for an organization, typically in
commercial organizations, which aims to improve the organization's productivity and efficiency.
This market seems to have already matured and is largely dominated by a few giants, like SAP and
Oracle.
open-source: is computer software whose source code is available under. Software Licenses grant
rights to users which would otherwise be prohibited by copyright. a license (or arrangement such as
the public domain) that permits users to study, change, and improve the software, and to redistribute
it in modified or unmodified form. Open sourcing is often done off the internet because of it's ease.
There is also on demand software that can be delivered via the internet.
6. What is the health of open-source software as a competitor?
This is obviously a disadvantage because if open source software grows to such an extent that
custom software like INFY provides is also open-sourced, then these software companies will have
trouble retaining their customers and making profits. However, this is VERY unlikely to be a serious
risk, especially for custom software vendors like INFY. The definition of custom software is that it
is made specifically for a certain organization to solve a certain problem. Thus, open-sourcing the
software doesn't make sense since there aren't that many users and since it is for a specific customer.
Open sourcing happens so that customers can help add to the functionality of the software and
creativity from many different sources can be funneled in. This is unnecessary and doesn't make
sense in the case of custom software so really, open sourcing in the case of INFY should not be
viewed as a serious risk.
7. More valuation info on competitors.
Wipro and INFY have similar P/E ratios, but Satyam has a ratio that is approximately six points
lower. This indicates that Satyam may be a profitable stock, but it's low P/E ratio is probably due to
the fact that it is still a much smaller and newer company than either Infosys or Wipro. It's market
cap is 3-4 times as small as those of the other two. Looking at the EPS, those of INFY, at 1.50, are
by far higher than those of Wipro and Satyam, which is .50 and .89 respectively. Furthermore, over
the last year, INFY has seen the most growth in the industry. That having been said however, I
would like to reiterate the point I made that the Indian software industry as a whole right now seems
to be a very profitable place to invest. I predict that all of there companies will make profits in the
upcoming year. It was a hard choice, but in the end, I chose INFY because it had the healthiest
financials of all these companies. It didn't have any irregularities or big jumps in numbers that were
difficult to explain. It seemed to be well established with expansion plans for the future and so it
seemed like a good buy.
TEVA Teva Pharmaceutical Industries
Risks
Opportunities
 Litigations
 Good presence in all of the markets
(diverse)
 New CEO
How does Wal-Mart and other buyers of
 Demand going up with expiring patents
generic drugs figure into the industry and
 Strength of pipeline
the company?
 Buffett bought
Wal-Mart recently instituted a $4 generic
 Counter-cyclical (diversify)
drug program in which they would be
 Baby-boomer growth
forcing down the prices of 300 generics
 Competence of management in financials
to $4, regardless of whether or not the

individuals had insurance. This could
potentially hurt Teva, in that, if their
drugs are on the list, the prices of the
products would be forced down. If Teva
is on the list, the now cheaper drugs
would be more attractive to consumers,
increasing competition. However, the
effect is going to be contained at least for
awhile, in that the program will only be
instituted in 65 stores in the Tampa area.
Though it may spread to all of Florida by
the end of 2007, it will take awhile for
this program to go national.
Key Risk or Opportunity?
Risk
What are the effects of having an Israeli headquarter?
Any effect that an Israeli headquarter could possibly have on Teva is minimized by its very
wide global presence and headquarters in numerous other countries.
Teva's global operations are conducted throughout North America, Europe, Latin America, Asia and
Israel. Teva has direct operations in more than 50 countries, as well as 36 pharmaceutical manufacturing
sites in 16 countries, 17 generic research and development centers operating mostly within certain
manufacturing sites and 18 API manufacturing sites around the world. During the year ended December 31,
2006, Teva generated approximately 60% of its sales in North America, 24% in Western Europe
(including Hungary) and 16% in other regions (primarily Latin America, including Mexico, Israel and
Central and Eastern Europe). (From Reuters)
Further, Teva in Israel can be likened to the strongest of the blue-chip companies in
America.
Key Risk or Opportunity?
Neither Risk Nor Opportunity
What are the pipelines of competitors, and how they are structured?
Novo Nordisk
Compound/indication
Phase 1
Levemir® (Insulin
detemir)
Type 1 and 2 diabetes
NovoMix® 50 and 70
Type 1 and 2 diabetes
Activelle® low dose
Hormone replacement
therapy
Liraglutide (NN2211)
Type 2 diabetes
AERx® iDMS
Type 1 and 2 diabetes
NovoNorm®/Metformin
Fixed Combo
Type 2 diabetes
NovoSeven®, Line
extension: Trauma
Bleeding in emergencies,
Trauma
Vagifem®
Hormone replacement
therapy
NovoSeven® in
prophylactic treatment
Haemophilia patients with
inhibitors
NovoSeven®, Line
extension: Cardiac
surgery
Elective Surgery, Cardiac
Surgery
NovoSeven®, Line
extension: Spinal surgery
Spinal surgery
NovoSeven®, Line
extension: traumatic
brain injury
Bleeding in emergencies,
Traumatic brain injury
Norditropin® in dialysis
Phase 2
Phase 3
Filed
patients
Adults Patients in Chronic
Dialysis
IL-21 Malignant
Melanoma
Malignant melanoma,
Cancer
IL-21 Renal Cell
Carcinoma
Renal Cell Carcinoma,
Cancer
IL-21 Colorectal Cancer
Colorectal Cancer
Liraglutide as antiobesity agent
Obese, non-diabetic people
NN344
Type 1 and 2 diabetes
NN5401
Type 1 and 2 diabetes
rFXIII, Cardiac surgery
Elective Surgery, Cardiac
Surgery
rFVIIa analogue
Haemostatic agent
Anti-KIR
Acute myeloid leukaemia,
Cancer
Worldwide Prescription
Products
Schering-Plough ScheringPlough Corporation
2000 Galloping Hill Road
Kenilworth, NJ 07033-0530
February 2007
Phase II
Adenosine 2a Receptor
Antagonist
Parkinson's Disease
►CXCR2
COPD
PDE 5 Inhibitor
Erectile Dysfunction
Pleconaril
Common Cold and Asthma
Exacerbations
NOXAFIL
I.V. Formulation
►Pradefovir
Hepatitis B
Protease Inhibitor
Hepatitis C
SARASAR
Breast Cancer
Variety of Solid Tumors
TEMODAR
Brain Metastases
I.V. Formulation
Variety of Solid Tumors
Thrombin Receptor
Antagonist
Arterial Thrombosis
Vicriviroc
HIV Infection
►Phase advance ►Indication
advance 1 International rights
only 2 J.V. with Merck 3
North American rights only
Phase III (Value Adding
Projects)
ASMANEX
Asthma (Japan)
►CAELYX
Multiple Myeloma
INTEGRILIN
Early Acute Coronary
Syndrome
NASONEX
Rhinosinusitis
Perennial Allergic Rhinitis
(Japan)
PEG-INTRON
Malignant Melanoma
REMICADE1
Pediatric Crohn's
SUBUTEX1
Rapid Dissolving Tablet
TEMODAR
Metastatic Melanoma
VYTORIN - Outcomes
Trials2
SEAS - Aortic Stenosis
SHARP - Renal Disease
ENHANCE - High Risk
Hypercholesterolemia
IMPROVE-IT - Acute
Coronary Syndrome
Phase III (New Entities)
CLARITIN/Singulair2
Seasonal Allergic Rhinitis
Golimumab (CNTO 148)1
Inflammatory Diseases
Mometasone/Formoterol
Combination
Asthma
►COPD
SARASAR
Myelodysplastic Syndrome
►Sublingual Tablet-Based
Immunotherapy3
Grass Pollen Allergies
Regulatory Application
Filed
Garenoxacin
Variety of Gram+/GramBacterial Infections (EU)
NASONEX
►Unscented (EU)
NOXAFIL
Serious Fungal Infections
(U.S.)
ZETIA
Lipid Lowering
(Monotherapy) (Japan)
Key Risk or Opportunity?
Neutral. Pipelines of
competitors do not appear to
directly compete with that of
Teva.
What are the Litigation Risks?
Most of Teva’s litigation risks are occurred when Teva is on the “offensive,” challenging
patents. Failed challenges can mean loss in legal fees. There is only one significant litigation
risk at this point in time with ProNeuron. Teva is currently involved in a trial after
ProNeuron accused it of executing clinical trials of a molecule for neurodegenerative
diseases that were not suitable according to scientific standards. The case has yet to be
developed, and does not appear to be significant as there is no coverage on it to date since
the initial announcement.
Key Risk or Opportunity?
Neutral
Additional Information: Update
Teva recently released its first quarter profits, beating the Street’s expectations, and
estimates. It now expects to earn between $2.20 and $2.30 per share in 2007, compared with an
earlier forecast of $2.07 to $2.19, and sales are expected to exceed $9 billion in 2007. Teva earned 42
cents per share compared with 37 cents a year ago, and the expected 39 cents a share that was
estimated by analysts
ETFC E-Trade
Risks
 Branches only in 14 states
 Highly correlation with the economy
 Bank’s increasing presence in the
market
Opportunities
 More diversified business
 Diversified products
 More people trading
 Better trading price
 Good platform and technology in
online trading
E*TRADE (ETFC) Additional Information



What are the revenues from branches, online, and phone? Give a breakdown and are there
any upcoming changes?
o They have 24 branches across 14 states
o I couldn’t find a breakdown between internet, phone and branch revenue, but I think
that is because the vast majority of revenues come from online trades. The branches
make up only a tiny portion of what E*TRADE does. Also, the tools that
E*TRADE provides are online, so even if a transaction takes place over the phone,
it is most likely based on information that the client received via the website’s tools.
o I would classify the fact that most revenue stems from the internet as an
OPPORTUNITY because it represents the lowest cost to E*TRADE (as opposed to
the branches and the phone services, which need labor to run)
What are the growth/prospects of the industry: how will these trends affect E-trade?
o The industry as a whole would suffer during an economic downturn because of
reduced trading activity (RISK). However, E*TRADE’s revenue from transactions
as a percentage of total revenue has fallen drastically since the economic downturn
when the dot-com bubble burst, making it less likely to suffer if the economy
stumbles (OPPORTUNITY).
o Additionally, the potential for a merger between E*TRADE and TD Ameritrade
represents a large OPPORTUNITY for investors because it would create economies
of scale. According to Deutsche Bank, a merger could – ‘result in 1/3rd EPS
accretion with 1/3rd cost savings, resulting in an exceptional pretax margin of 65%.
We estimate roughly every 10% in incremental cost reductions would increase EPS
for the combined company by about 15 cents (10%). Our base case scenario assumes
a 1/3rd decline in combined expenses and a 5% reduction in combined revenue,
resulting in 1/3rd EPS accretion for TD Ameritrade.’
What are the comparisons of revenues and demographics across the industry?
o They all target roughly the same demographic
o The revenues are shown in the chart and in the graph below.
Thousands $
AMTD
ETFC
SCHW
2006
2005
2004
$1,803,531
$1,003,153
$921,974
$2,420,321
$2,537,025
$2,083,254
$4,988,000
$5,151,000
$4,479,000
Revenues
$6,000,000
Revenues in Thousands
$5,000,000
$4,000,000
2006
2005
2004
$3,000,000
$2,000,000
$1,000,000
$0
AMTD
ETFC
SCHW
Company

Explain the GARP report and the assumptions behind the projection.
o The following, from the intro to the GARP report, sums up the basic assumptions
that lead to the report’s estimates: “We do not believe that E*Trade or Ameritrade
has ceded any meaningful share as a result of the free-trade offers from banking
stalwarts Wells Fargo or Bank of America. Sophisticated retail investors, in our view,
should wonder about the quality, or ulterior profit motives, of any product or service
that is widely advertised as “free.” We also note that some of these offers require
that minimum balances be held in a deposit account. Bank of America, for instance,
requires a 25,000 minimum deposit account balance. However, should the free-trade
offers take meaningful share from traditional online brokers, we believe it could
accelerate a round of consolidation in the online brokerage space. Unless brokerage
is a core competency, we believe it is difficult for large financial services firms to
scale their brokerage operations as efficiently as traditional online brokers such as
E*Trade and Ameritrade. In our view, large investments in both technology and
customer service are required to gain critical mass in the retail brokerage space. To
underscore the importance of service, both Ameritrade and E*Trade have
announced major investments to enhance the customer service experience, which
each company believes will lead to a larger share of their clients’ wallet. Ameritrade,
for example, has earmarked an incremental spend of $100 million annually to boost
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sales and service. After being plagued by poor service levels in the past, Ameritrade
and E*Trade both realized that customer service is critical to be successful in the
long-term investor space. This highlights the transformation that is underway as the
online brokers shift to being more of a relationship-oriented business and not just an
anonymous web-based toll collector.”
What's the target demographic?
o The target demographic is self-directed investors who want to manage their own
money
What's the account minimum?
o For the “ETRADE Complete Investment Account”, there is a minimum of $1000.
If you have under $50,000 in the account and make less than 30 trades per quarter,
you are charged $12.99 per trade. If you have over $50,000 in the accounts or make
more than 30 trades per quarter, you are charged $6.99-9.99 per trade, depending on
the number of trades you make per quarter
Charts on minimum to trade, cost, and volume per day?
o ETRADE: see above, for Darts see below
o TD Ameritrade: no minimum and $9.99 per trade over the internet
o Charles Schwab: $1000 minimum and $9.95-12.95 per trade depending on the
number of trades per year.
o Info on DARTS (daily average revenue trades) is below
Interest changed after dotcom to net interest. What is the meaning of this to investors?
o The increase in net operating interest income was due primarily to growth in
enterprise interest-earning assets coupled with an increase in enterprise net interest
spread. The growth in enterprise interest-earning assets was driven by increases in
both loans, net and margin receivables. The increase in enterprise net interest spread
was driven by changes in our mix of lending and funding sources. Average loans, net
and margin receivables as a percentage of average enterprise interest-earning assets
increased 8% to 64% for 2006 compared to 2005. Average retail deposits and free
credits as a percentage of average enterprise interest-bearing liabilities increased 9%
to 62% in 2006 compared to 2005.
DARTS:
DARTS
2006
2005
2004
AMTD
ETFC
SCHW
250,000
159,348
234,400
256,500
97,740
197,900
248,500
82,643
156,400
DARTS
300,000
250,000
200,000
2006
2005
2004
150,000
100,000
50,000
0
AMTD
ETFC
SCHW
Publicis Groupe
Risks
 Dependence on market
 Clients can terminate contracts easily
 Fluctuation in stocks dependent on economy
 Growth seems to be slow
 4. How is PUB integrating its acquisitions?
Con: - PUB consolidates spending while
trying to revamp the infrastructure of
its acquisitions to match the Publicis model.
Opportunities
 Management
 Global presence
 Strong client base and longevity
 Diverse client base
 Big customers that could last economic
downturns
 Strong acquisition history
 P/E ratio compared to competitors
 1.
What is the average retention rate for
industry?
Pro:+45 years is the average retention rate
for PUB. Industry is around 30 years,
(averaging retention rates from other
competitors).
 2. What is the future of the advertising
industry?
Pro: + The Economist says in a recent
article that the advertising industry
is coming out of a recent slump. In the
future, advertising companies will be
able to inexpensively use the web to connect
with customers at a lower cost for
both the advertising agency and for its
clients.
 3. How is PUB addressing new media?
Pro:+ PUB is at the forefront of new media,
and is preparing
advertising packages for clients that include
digital technology, cellular
phone advertising, and online content.
COH Coach
Risks
 economic factors as a luxury good
 competitors (more luxurious brands) have
taken over the Asian market
 there are the areas of growth
 Counterfeit Market
Curbside purveyors of counterfeit goods offer a
greater proportion of European designer name
brand handbags and leather goods (e.g. Louis
Vuitton, Gucci, Fendi) than they do of the more
affordable luxury goods because consumers tend
to regard counterfeit European handbags, which
usually retail for $1000 or more, as a bigger steal
than if they purchased a counterfeit Coach bag
for a price that is closer to that of a real Coach
bag. As a result, Coach lawsuits targeting
counterfeiting have not been as widespread or
powerful as those of Moet Hennessy Louis
Vuitton (LVMH) and Fendi, though Coach has
sued Target, who is not a licensed distributor of
Coach items, for selling Coach counterfeits,
marking it as the first time Coach has sued a
major retailer for counterfeiting. In October
2006, a bag purchased from a Florida Target
store was found to be an “exact replica of a
genuine Coach handbag” bearing at least one
Coach trademark. In the past, Coach has also
accused Target of lifting signature Coach designs
for bags of their Isaac Mizrahi and Cherokee
lines.
 Dependence on Economy and Mid-2006
Dip
Opportunities
 Strong brand
 In an economic downturn, more
affordable price might keep it in demand
 Liz Claiborne
Until Liz Claiborne’s (LIZ) acquisition of Kate
Spade in 2006, Neiman Marcus had maintained a
56% stake in Kate Spade since 1999. At the time
of the acquisition, Liz Claiborne said that the
acquisition would reduce its earnings slightly in
2007, suggesting that Kate Spade would not be a
very profitable acquisition.
Liz Claiborne’s brands also include Axcess, Bora
Bora, C & C California, City Unltd., Claiborne,
Crazy Horse, Curve, Dana Buchman, Elisabeth,
Ellen Tracy, Emma James, Enyce, First Issue,
Intuitions, J.H. Collectibles, Juicy Couture,
Kenzie, Kenziegirl, Laundry by Shelli Segal, LIZ,
Liz Claiborne, Lucky Brand Jeans, Mac & Jac,
Mambo, Marvella, Mexx, Monet, Monet 2,
Prana, Realities, Sigrid Olsen, Soul by Curve,
Spark, Stamp 10, Tapemeasure, Tint, Trifari,
Villager and Yzza. For fiscal year 2006, Kate
Spade garnered sales of $84 million, whereas as
Coach had net sales of 2.1 billion.

Five-year Expansion Plan, Markets of
Future Growth
This year’s openings, including two March
openings in Riverside and San Bernardino are
part of an expansion plan announced in 2005
that will add 100 stores over a four to five-year
span. This is in addition to their 300 existing U.S.
stores and 200 international stores. Aside from
opening new stores in the U.S., Coach is also
targeting newly rich countries, especially Asian
countries such as China, and also has two Legacy
stores slated for the fall.
Dependence on Economy and Mid-2006 Dip
While Coach’s niche market is not sensitive to highly fluctuating markets such as those for energy,
that does not make Coach resistant to all fluctuations. As seen in the summer months of 2006, the
major retail companies Polo Ralph Lauren (RL), Philips-Van Heusen (PVH), and Liz Claiborne
(LIZ) all experienced a dip in sync with that of Coach. As a mode of comparison, the S&P500 also
experienced something of a dip, albeit a much smaller one. This indicates that Coach is not exempt
from any industry-wide influences on price, though Coach still sustained a higher price than the
other major retailers during this time.
Target Price
While investments in stocks coming from decidedly niche markets tend are often good investments,
the problem inherent to this situation is that there is relatively few, if any, comparable stocks to
which one can compare and create a reliable target price. A 40.86 fair valuation price was determined
earlier, but to base one’s investment on this figure would be misleading and even irresponsible, and
to create an arbitrary target price above that would be even more so.
DIS Disney
Risks
 No major online presence
 Slow growth (large company)
 There was a decrease in capital expenditure
mostly resulting from lower investment at
Hong Kong Disneyland because of
substantial completion of the park prior to
its opening in September and lower
expenditure at domestic theme parks in
preparation for Disney’s 50th anniversary.
 There was a large drop in cash from
financing activities. The cash used for
financing activities in 2006 included share
repurchases and payment of dividends to
shareholders.

Opportunities
 Innovative technology i.e. online TV shows
 ESPN monopoly on sports
 Creativity
 Cheap
 Revenue has steadily increased over the past
year from 31,944 million to 34,285 million in
2006 for a 7% increase. In addition there
was a 33% increase in Gross Profit to 5,478
million.
 Disney has a quick ratio of 1.05 which is
higher than both the industry (.80) and
sector (.84) demonstrating the company’s
good liquidity and its ability to meet
obligations. It has a debt to equity ratio of
.38 in comparison with the industry (.68) and
sector (.99) indicating that it is less risky. It
has a return on equity of 15.01 and return on
assets of 7.87 which both fair well in
comparison to the industry and sector
implying that the company/management is
good at generating returns.
 2007 Pipeline (movies, shows, etc.)
Upcoming film releases
Pirates: At World’s End- May 25th
Ratatouille- June 29th
Underdog- August 3rd
Enchanted- November 21st
National Treasure- Book of Secrets
Coming to DVD: Over 20 films including
Pirates of the Caribbean- the original in high
definition!!
Bridge To Terabithia- June 19th
The Many Adventures of Winnie The Pooh: The
Friendship Edition- June 19th
Hannah Montana: Pop Star- June 26th
Disney Baby Einstein Discovering Shapes—
Circles, Squares and More
The Jungle Book 40th Anniversary Platinum
Edition
Online games:
Pirates of the Caribbean Online game- Spring
2007
Shows:
High School Musical-Opens on Broadway June
26th
Little Mermaid opens on Broadway- August 23rd
2007