Health Care Sector Defined - SIM holdings

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6 Δεκ 2012 (πριν από 4 χρόνια και 9 μήνες)

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Health Care Sector

Sang Mook Lee, Shinichiro Kido

Bus
-
Fin 824

February 14
th
, 2007

Agenda


Definition of Healthcare Sector


Market & Sector Overview


Business Analysis


Financial Analysis


Relative Valuation


Recommendation

Health Care Sector Defined

S&P
500

Healthcare

Sector

(As

of

April

28
,

2006
)


-

Healthcare

Equipment

and

Services



-

Healthcare

Equipment

and

Supplies



-

Healthcare

Providers

and

Services


-

Healthcare

Technology


-

Biotechnology,

Pharmaceuticals,

and

Life

Sciences



-

Biotechnology



-

Pharmaceuticals


-

Life

Sciences

Tools

and

Sciences

55

Health

Care

companies

are

in

S&P
500

Health Care Sector Defined


-

SIM holdings
-

Industries of our Current Holdings:

Pharmaceuticals

HealthCare Equipment/Supplies

Biotechnology

Health Care Providers/Services

All of the above industries make up the majority of the
Healthcare Sector

Our current holdings are well diversified within our
sector

Market & Sector Overview


Total Healthcare market cap is
approximately $2.3 trillion


Healthcare as a percentage of S&P500


12.15%


Third largest weighting in S&P500


Behind Financials and Information Technology

Health Care Sector Breakdown

By Market Cap

11%
4%
13%
1%
4%
0.2%
0.4%
2%
11%
52%
Biotechnology
Health Care Distributors
Health Care Equipment
Health Care Facilities
Health Care Services
Health Care Supplies
Health Care Technology
Life Sciences Tools &
Services
Managed Health Care
Pharmaceuticals
Industry Leaders in S&P500

Ticker

Company

Market Cap ($B)

P/E

Company Type

PFE

Pfizer, Inc

190

12.7

Drug Manufacturer

JNJ

Johnson & Johnson

190

17.5

Medical Products/Supplies

MRK

Merck & Co.


95

17.4

Drug Manufacturer

AMGN

Amgen


81

18.4

Biotechnology

ABT

Abbott Laboratories

80

20.7

Drug Manufacturer

UNH

UnitedHealth Group

69

16.8

Health Maintenance Services

WYE

Wyeth

67

15.8

Drug Manufacturer

Health Care Sector Performance


52 Week (
-
)


S&P 500: +13.50%


Health Care Sector: +7.85%


YTD (
-
) in 2006


S&P 500: 13.62%


Health Care Sector: 5.78%


YTD and QTD (+) in 2007


S&P 500: 2.24%


Health Care Sector: 3.37%

Health Care Sector vs. Market

10 Year

S
tock
V
al
®
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
74
77
80
84
88
92
96
100
104
109
114
119
124
129
134
02/28/97 - 02/28/07
SP5A
SP-35
PRICE RELATIVE TO S&P 500 COMPOSITE ADJUSTED (SP5A)
FEB 1997 = 100
ANNUAL RATE
CUMULATIVE
S&P HEALTH CARE SECTOR COMP ADJ (SP-35)
-0.7%
-6.8%
Health Care Sector vs. Market

YTD in 2006

S
tock
V
al
®
Q1/06
Q2/06
Q3/06
Q4/06
91
92
93
94
95
96
97
98
99
100
12/31/05 - 12/31/06
SP5A
SP-35
PRICE RELATIVE TO S&P 500 COMPOSITE ADJUSTED (SP5A)
DEC 2005 = 100
ANNUAL RATE
CUMULATIVE
S&P HEALTH CARE SECTOR COMP ADJ (SP-35)
-7.3%
-7.3%
Business Analysis


Defensive and relatively Matured


Performs independently of economic cycles and
business factors


Beta for HealthCare Sector overall is 0.6


External Factors


Aging Population, government regulation & trend
towards consumer
-
oriented product


Risks


Earnings vulnerable to liability lawsuits, patent
expirations, and development cost rising faster than
sales


External Factors


Demographics


Average life expectancy continues to lengthen


Baby boomers get old and approach retirement


By 2010, individuals 50 and up will make up
40% of the population (34% in 2000)


The developed world is growing older, richer


More spending in Health Care (led by US)


Highly increasing need for health and beauty
products

External Factors


Government
Regulation


Exclusive Patents


High barrier for competitors until


patent expiration



Regulation Eased


Generic Drug Initiative in 2003


2007 President’s union address


Turning public attention to high medical
expenses.

External Factors


R&D


High drug development cost
-

$1.8 Billion


ROI for large pharmaceutical companies down from 9% in the
late 1990s to 5% today due to:


Rising costs with price increase constrained


Declining productivity


Shortening of average period of exclusivity for new drugs


Long Investment Period


2
-
12 years from discovery to market


1 in 10,000 compounds reach market


Blockbuster drugs expiration


Patent expiration exposing them to generic substitution

Five Force Analysis

Barriers to Entry (+or
-
)



Economies of scale


Patent and High R&D
Expense


Regulation

Supplier Power (
-
)



Substitutes


Low concentration

Buyer Power (
-

)



Price sensitivity


Decreasing
switching cost

Substitute (
-

)



Generic drugs

Industry Rivalry (N)


Large players and
small players


Low product
differentiation in
some industries

Financial Analysis

Income Statement
S&P HEALTH CARE SECTOR COMP ADJ (SP-35) M-Wtd
As Reported Financials
StockVal ®
FYE Dec
Company Filings
2005
% Chg
2004
% Chg
2003
% Chg
2002
% Chg
Revenues ($ Mil)
51550.9
6
48550.8
14
42408.5
37
30961.4
10
Cost of Goods & Services
32000.7
8
29749.0
16
25635.4
46
17570.9
17
Gross Profit
18671.5
4
18000.4
13
15954.2
29
12373.8
5
S G & A Expense
8453.0
5
8051.3
10
7313.6
32
5526.9
4
R&D Expense
3373.8
6
3170.7
9
2902.0
38
2096.6
4
EBITDA
8491.9
13
7506.5
22
6149.5
13
5461.9
8
Depreciation & Amortization
1567.5
6
1482.8
16
1275.8
54
828.0
-5
EBIT
6924.3
15
6023.7
24
4873.7
5
4633.9
10
Interest Expense
329.2
13
292.4
5
278.2
8
258.6
-12
Pre-Tax Income
6595.2
15
5731.4
25
4595.5
5
4375.3
12
Taxes
1959.4
14
1725.1
21
1423.9
14
1251.3
16
Net Income Reported ($ Mil)
4621.4
16
3967.9
18
3374.3
15
2933.1
-5
Net Income Adjusted
5317.3
6
5015.0
13
4434.8
24
3574.0
4
EPS Reported
-1.74

3.37
157
1.31
-2
1.34
-1
EPS Adjusted
2.11
9
1.94
13
1.73
6
1.64
8
Shares Outstanding (Thou)
2506319
-3
2580340
0
2574376
18
2185617
-3
Dividends Common (Per Shr)
0.61
7
0.57
3
0.55
6
0.52
5
Dividends Preferred ($ Mil)




Financial Analysis

Balance Sheet
S&P HEALTH CARE SECTOR COMP ADJ (SP-35) M-Wtd
As Reported Financials
StockVal ®
FYE Dec
Company Filings
2005
% Chg
2004
% Chg
2003
% Chg
2002
% Chg
2001
Cash & Equivalents ($ Mil)
10478.3
13
9279.2
27
7304.8
30
5626.6
14
4926.3
Accounts Receivable
5318.1
1
5275.1
9
4848.5
31
3710.4
1
3663.1
Inventories
3965.2
-5
4174.9
2
4092.0
35
3033.7
0
3021.4
Other Current Assets
2679.3
8
2474.7
4
2385.2
21
1972.4
10
1798.1
Total Current Assets
22422.3
6
21187.8
14
18614.4
30
14330.7
8
13275.0
Plant & Equipment Gross
14456.8
1
14267.9
6
13403.2
31
10248.3
8
9447.1
Accumulated Depreciation
5911.3
6
5594.9
12
5008.0
28
3909.2
10
3566.8
Plant & Equipment Net
8398.1
-1
8514.1
3
8240.7
33
6219.3
8
5782.3
Other Long-Term Assets
20362.8
2
19933.3
6
18869.8
66
11352.6
11
10222.5
Total Long-Term Assets
28760.9
1
28447.4
5
27110.6
54
17571.9
10
16004.8
Total Assets
56855.3
-1
57429.7
9
52726.1
38
38147.9
8
35460.3
Accounts Payable
3764.4
4
3613.7
6
3398.9
26
2694.5
3
2625.1
Short-Term Debt
2391.8
12
2132.5
22
1752.9
5
1674.6
4
1611.2
Other Current Liabilities
7615.4
3
7375.7
14
6470.8
36
4759.9
1
4735.8
Total Current Liabilities
13771.6
5
13121.8
13
11622.6
27
9128.9
2
8972.1
Long-Term Debt
6570.2
4
6330.3
5
6017.3
31
4583.9
15
3981.6
Deferred Income Taxes
1855.6
-10
2061.6
-5
2177.4
143
897.5
15
779.6
Other Long-Term Liabilities
4333.4
-8
4722.2
6
4461.4
28
3482.0
2
3413.6
Total Long-Term Liabilities
12325.4
-3
12648.2
3
12323.1
44
8574.7
9
7864.9
Total Liabilities
30167.8
-6
32202.7
6
30434.7
30
23486.8
4
22628.7
Minority Interest




Preferred Equity




Common Equity
26496.1
6
25026.4
14
21977.5
53
14320.2
15
12469.7
Total Equity
26507.9
6
25040.3
14
21994.6
54
14320.2
15
12469.7
Total Liab & Equity
56855.3
-1
57429.7
9
52726.1
38
38147.9
8
35460.3
Relative Valuation

S
tock
V
al
®
S&P HEALTH CARE SECTOR COMP ADJ (SP-35) Price 44.89
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
PRICE / YEAR-FORWARD EARNINGS RELATIVE TO S&P 500 COMPOSITE ADJUSTED (SP5A) M-Wtd
0.8
1.0
1.2
1.4
1.6
HI
1.50
LO
0.99
ME
1.18
CU
1.07
01-31-1997
02-07-2007
PRICE / SALES RELATIVE TO S&P 500 COMPOSITE ADJUSTED (SP5A) M-Wtd
0.9
1.2
1.5
1.8
2.1
2.4
HI
2.26
LO
1.19
ME
1.66
CU
1.51
01-31-1997
02-07-2007
PRICE / BOOK VALUE RELATIVE TO S&P 500 COMPOSITE ADJUSTED (SP5A) M-Wtd
1.2
1.5
1.8
2.1
2.4
2.7
HI
2.56
LO
1.24
ME
1.74
CU
1.30
01-31-1997
02-07-2007
Relative Valuation

S
tock
V
al
®
S&P HEALTH CARE SECTOR COMP ADJ (SP-35) Price 44.89
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
PRICE / EBITDA RELATIVE TO S&P 500 COMPOSITE ADJUSTED (SP5A) M-Wtd
1.4
1.6
1.8
2.0
2.2
2.4
2.6
3.0
HI
2.88
LO
1.46
ME
2.14
CU
1.59
01-31-1997
02-07-2007
PRICE / CASH FLOW ADJUSTED RELATIVE TO S&P 500 COMPOSITE ADJUSTED (SP5A) M-Wtd
1.21
1.32
1.43
1.54
1.65
1.76
1.87
1.98
2.09
2.20
HI
2.14
LO
1.22
ME
1.63
CU
1.28
01-31-1997
02-07-2007
Relative Dividend Yield

Sector

Dividend Yield (%)

Consumer Discretionary

1.03

Consumer Staples

2.15

Energy

1.49

Financials

2.35

Health Care

1.54

Industrials

1.90

Information Technology

0.62

Materials

2.55

Telecommunication

3.32

Utilities

3.11

S&P500

1.77

SIM Current Holdings

Ticker

Name

SIM Weight

Avg. Cost

Current
Price

(Feb 7, 2007)

Gain/Loss

(%)

DNA

Genentech Inc
*

2.47%

$82.54

$86.99

5.39%

JNJ

Johnson and Johnson

4.64%

$60.22

$65.80

9.27%

SYK

Stryker Corp

3.74%

$43.78

$62.40

42.54%

TEVA

Teva Pharmaceutica
*

3.53%

$32.11

$34.82

8.44%

WLP

Wellpoint

3.08%

$76.73

$81.80

6.61%




















*

Not a member of S&P 500, but a member of NASDAQ


Total SIM Weight

17.46%

S&P Weight

12.15%

SIM Overweight

5.31%

Recommendations


Solid fundamentals and demographic support


Industries within sector are highly diversified


Aging of America, expanding need for Healthcare


Questionable market outlook


Healthcare Sector is a solid defensive area


Priced relatively expensive


Recommend reducing the current SIM position
to 15.0%(2.84% still OVERWEIGHT)


Reduce Tracking Error while maintaining solid
diversification benefits for overall SIM portfolio.