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Health care sector

Health care sector. Suyang Yang Huiting Wang. Agenda. Sector Overview Business Analysis Financial Analysis Valuation Analysis Recommendation Q&A. Health Care Sector. Stocks relates to medical & healthcare goods or services Health Care Sector includes: Hospital management firms

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Health care sector

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  1. Health care sector Suyang Yang Huiting Wang

  2. Agenda • Sector Overview • Business Analysis • Financial Analysis • Valuation Analysis • Recommendation • Q&A

  3. Health Care Sector • Stocks relates to medical & healthcare goods or services • Health Care Sector includes: • Hospital management firms • Health maintenance organizations (HMOs) • Biotechnology • Medical products

  4. Sector Size

  5. SECTOR WEIGHT S&P 500 SIM

  6. Sector Weight

  7. Health Care Industries

  8. Health Care Industry Pharmaceutical is the KEY driver of the sector • Represent 51.7% of Health Care Sector & 6.6% of S&P 500 by Mkt. Cap • Industry develops, produces, and markets drugs licensed for use as medications • Pharmaceutical Sales include: • Prescribed drugs • OTC medications

  9. top health care companies

  10. SIM HOLDINGS JNJ & TEVA are two top holdings of SIM Portfolio

  11. Business Analysis Overall, Health Care sector is in Maturity stage of life cycle • Pharmaceutical Industry(51.7%) is in the grey area between Growth and Maturity • Health Care-Equipment(14.52%) is in Maturity stage • Biotechnology Industry(12.5%) is in Growth stage

  12. 5 force Concentrate on several large companies: JNJ, PFE, MRK,ABT (40%) Low- no buyer has any particular influence on product or price • High barriers to enter, due to huge demand for R&D • Costly Regulations • Patent Buyer Power Substitutes Generic Drugs Barriers to Enter Supplier Power Low- Major supplier is chemical industry and have competitive suppliers

  13. Patent Expiration & Generic Drugs • 20 YR Patent Length, 10 yr avg for FDA approval • 2009-2014, expires @ the rate of 3 drugs/year • Generic Drugs: cost-saving alternative

  14. 5 force Concentrate on several large companies: JNJ, PFE, MRK,ABT (40%) Low- no buyer has major influence on product or price • High barriers to enter, due to huge demand for R&D • Costly Regulations • Patent Buyer Power Substitutes Generic Drugs Barriers to Enter Supplier Power Low- Major supplier is chemical industry and have competitive suppliers

  15. Factors Influences Health Care Sector

  16. Demographics & Baby Boomers Demographic trend shows that there is a very big potential market for Health Care Sector in the near future. Also, Baby boomers are getting older.

  17. National Health Expenditure Health Expenditure is in an up trend, which indicate future market of Health Care Sector

  18. Exchange Rate Euro/USD Ratio Chart

  19. Healthcare Reform • Period of controversy (UNCERTAINTY) • Worst-case scenario are priced in • Sector is over-sold 16.0%-12.7% 21.0%-13.1%

  20. FINANCIAL ANALYSIS-NPM SPX: 8.0% HCX: 10.0% DRUGS: 22.0% BIOTK: 30% for 3 years

  21. FINANCIAL ANALYSIS-NPM

  22. FINANCIAL ANALYSIS-ROE HCX:24.1% SPX: 11.0% DRUGS: 28.5% BIOTK: 23.7% HCDIS: 17.0% HCEQP: 19.2%

  23. FINANCIAL ANALYSIS-CF Good job: BIOTK Stable: DURGS

  24. FINANCIAL ANALYSIS-EBITDA Current 2009: HCX: 16.9% SPX: 17.4%

  25. FINANCIAL ANALYSIS-Revenue Growth HCX Revenue is increasing at average 9% for the past 5 years.

  26. VALUATION ANALYSIS

  27. VALUATION ANALYSIS-Sector fP/E High: 39.7 Low: 10.0 Median: 17.9 Current 11.6 Absolute Price to Earnings Ratio High: 1.6 Low: 0.69 Median: 1.1 Current 0.71 Price to Earnings Relative to S&P 500

  28. VALUATION ANALYSIS-Industry fP/E High: 1.1 Low: 0.64 Median: 1.0 Current 0.65 Drugs Price to Earnings Relative to S&P 500 High: 3.2 Low: 0.78 Median: 1.5 Current 0.78 Biotk Price to Earnings Relative to S&P 500

  29. VALUATION ANALYSIS-Industry fP/E High: 1.6 Low: 0.65 Median: 0.99 Current 0.82 Hcdis Price to Earnings Relative to S&P 500 High: 1.8 Low: 0.79 Median: 1.3 Current 0.84 Hceqp Price to Earnings Relative to S&P 500

  30. VALUATION ANALYSIS-Sector P/S High: 4.7 Low: 1.0 Median: 2.0 Current 1.2 Absolute Price to Sales Ratio High: 2.4 Low: 1.1 Median: 1.3 Current 1.1 Price to Sales Relative to S&P 500

  31. VALUATION ANALYSIS-Industry P/S High: 3.9 Low: 2.1 Median: 2.5 Current 2.3 Drugs Price to Sales Relative to S&P 500 High: 10.5 Low: 3.8 Median: 5.5 Current 4.0 Biotk Price to Sales Relative to S&P 500

  32. VALUATION ANALYSIS-Industry P/S High: 0.4 Low: 0.1 Median: 0.2 Current 0.1 Hcdis Price to Sales Relative to S&P 500 High: 3.6 Low: 1.8 Median: 2.7 Current 2.3 Hceqp Price to Sales Relative to S&P 500

  33. VALUATION ANALYSIS-Sector P/B High: 10.1 Low: 2.2 Median: 4.2 Current 2.9 Absolute Price to Book Value Ratio High: 2.5 Low: 1.2 Median: 1.4 Current 1.4 Price to Book Value Relative to S&P 500

  34. VALUATION ANALYSIS-Industry P/B High: 3.3 Low: 1.2 Median: 1.5 Current 1.4 Drugs Price to Book Relative to S&P 500 High: 4.9 Low: 1.2 Median: 1.8 Current 1.5 Biotk Price to Book Relative to S&P 500

  35. VALUATION ANALYSIS-Industry P/B High: 1.5 Low: 0.5 Median: 0.9 Current 0.9 Hcdis Price to Book Relative to S&P 500 High: 2.6 Low: 1.2 Median: 1.9 Current 1.3 Hceqp Price to Book Relative to S&P 500

  36. VALUATION ANALYSIS-Sector P/CF High: 163.1 Low: 7.6 Median: 14.4 Current 9.4 Absolute Price to Cash Flows Ratio High: 9.8 Low: 0.9 Median: 1.3 Current 0.9 Price to Cash Flow Relative to S&P 500

  37. VALUATION ANALYSIS-Industry P/CF High: 2.0 Low: 0.8 Median: 1.2 Current 0.8 Drugs Price to Cash Flow Relative to S&P 500 High: 3.8 Low: 1.1 Median: 2.0 Current 1.1 Biotk Price to Cash Flow Relative to S&P 500

  38. VALUATION ANALYSIS-Industry P/CF High: 2.0 Low: 0.7 Median: 1.3 Current 0.8 Hcdis Price to Cash Flow Relative to S&P 500 High: 2.0 Low: 1.1 Median: 1.6 Current 1.1 Hceqp Price to Cash Flow Relative to S&P 500

  39. VALUATION ANALYSIS-Sector Summary

  40. Recommendations • Short Term: Increase 52 basis point bring the SIM portfolio 100 basis point overweight relative to S&P 500. • Long Term: Decrease weight when economy shows definite signs of improvement due to the defensive nature of Health Care sector.

  41. Questions? Thank You!

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