CIF Sector Recommendation Report (Fall 2012)

Transcription

1 CIF Sector Recommendation Report (Fall 2012) Date: March 3, 2013 Analyst: Nick Pascoe Sector: Healthcare Review Period: February 12 February 26 Section (A) Sector Performance Review Cougar Investment Fund Sector Review Spreadsheet Template Please download and save this template to your own storage device You only ne e d to input value s to ce lls highlighte d in "ye llow" The re st of the spre adshe e t is calculate d automatically Ple ase re ad "Se ctor Re vie w Guide line s" docume nt care fully HC Ticker Current Beg. Stop-loss Target % Cap # Shares Current vs. Sectorvs. S&P 500 Price Price Price Price Gain Value S&P 500 $INX % Sector ETF XLV $43.02 $ % 2,300 $98, % Current Holdings WellPoint WLP $61.83 $66.01 $51.00 $ % 330 $20, % -5.01% Gilead Sciences Inc GILD $42.25 $40.83 $35.00 $ % 920 $38, % 4.80% Laboratory Corp. of America LH $88.49 $89.41 $82.00 $ % 120 $10, % 0.29% *Express Scripts Holding Company (ESRX) was purchased after Feb % Within the two week review period, the healthcare sector outperformed the market by 0.79%. Both prices saw a negative change overall but the XLV only decreased by 0.53% whereas the market dropped by 1.32%. 1

2 From the chart, it shows that the S&P 500 was originally doing better than the XLV but over the course of the two week review period, it dropped below it and has since remained there. Highlight noteworthy headline news from the sector (company-, industry-, or sector- level news) The health insurance industry is welcoming the affordable healthcare bill because it encourages people to contribute to their costs in a way that supports the public health system. (scoop.co.nz) Increasing expenditure on HC sector is something the industry is looking forward to during the Union Budget to help it grow. (economictimes.com) Highlight the largest two holdings from the sector and note any headline news on the companies The two largest holdings in the XLV are Johnson & Johnson (JNJ) and Pfizer (PFE). JNJ has a market cap of $212.8 billion and Pfizer has a market cap of $201.5 billion. The next closest holding is Novartis AG at $164.1 billion. JNJ still recalling hip implants and handling lawsuits. A JNJ expert announced that an infection, rather than a defect in the product, led to hip failure. Still no sign that it should really impact the performance. 2

3 Pfizer has settled about 80% of more than 2700 lawsuits over its smoking cessation drug, Chantix. The company is assuming a loss of $273 million to settle the cases. (al.com) Comment on short-term outlook of the sector (including noteworthy upcoming events) The short-term outlook for the XLV currently looks favorable. As a whole the sector does not foresee anything that should be severely impacting and should be alright. The Affordable HC Act and Obamacare are the main news points, but their effects have mostly already taken place, at least for the next few months. Section (B) Sector Holding Updates Company #1: WellPoint (WLP) Date Recommended: 10/30/2012 Date Re-evaluated: 03/03/2013 Company Update Other than the recent change in CEOs to Joseph Swedish, WellPoint has announced its full acquisition of Amerigroup for $4.9 billion, which should continue to lift earnings in the future. Relative Performance Both the sector and the market outperformed the stock by a little more than 5%. The stock itself had a negative growth of -6.33%, dropping the price by almost $5. This is significantly farther than the target price than it was at the beginning of the review period. Price Charts Three Month Chart 3

4 One Year Chart Valuations Analysis Original Analysis 4

5 Re-evaluation Analysis VALUATION RATIOS Company Industry Sector P/E Ratio (TTM) Price to Sales (TTM) Price to Book (MRQ) Price to Cash Flow (TTM) The company s ratios did not really change at all but the figures for the industry and sector both changed dramatically. This is largely due to the increase in growth for the industry over the last few months. Historical Surprises Original Analysis 5

6 Re-evaluation Analysis HISTORICAL SURPRISES Sales and Profit Figures in US Dollar (USD) Earnings and Dividend Figures in US Dollar (USD) Estimates vs Actual Estimate Actual Difference Surprise % SALES (in millions) Quarter Ending Dec-12 15, , Quarter Ending Sep-12 15, , Quarter Ending Jun-12 15, , Quarter Ending Mar-12 15, , Quarter Ending Dec-11 15, , Earnings (per share) Quarter Ending Dec Quarter Ending Sep

7 Quarter Ending Jun Quarter Ending Mar Quarter Ending Dec The two most recent quarters have shown negative results from sales but very positive returns in earnings by 8.58% and 13.79%, respectively. Consensus Estimates Original Analysis Re-Evaluation Analysis CONSENSUS ESTIMATES ANALYSIS Sales and Profit Figures in US Dollar (USD) Earnings and Dividend Figures in US Dollar (USD) # of Estimates Mean High Low 1 Year Ago SALES (in millions) 7

8 Quarter Ending Mar , , , , Quarter Ending Jun , , , , Year Ending Dec , , , , Year Ending Dec , , , , Earnings (per share) Quarter Ending Mar Quarter Ending Jun Year Ending Dec Year Ending Dec LT Growth Rate (%) The sales and earnings estimates have both increased dramatically. Estimate Revision Analysis Original Analysis 8

9 Re-Evaluation Analysis ESTIMATES REVISIONS SUMMARY Last Week Last 4 Weeks Number Of Revisions: Up Down Up Down Revenue Quarter Ending Mar Quarter Ending Jun Year Ending Dec Year Ending Dec Earnings Quarter Ending Mar Quarter Ending Jun Year Ending Dec Year Ending Dec There has not been anything in the past week. The past 4 has only seen 4 total revisions, all upward. Analysts Recommendations Original Analysis 9

10 Re-Evaluation Analysis ANALYST RECOMMENDATIONS AND REVISIONS 1-5 Linear Scale Current 1 Month Ago 2 Month Ago 3 Month Ago (1) BUY (2) OUTPERFORM (3) HOLD (4) UNDERPERFORM (5) SELL No Opinion Mean Rating Since the original review, the stock has mostly been moved to a hold, with buy recommendations moving from 9 to 6 and holds from 9 to 13. Company #2: Laboratory Corporation of America Holdings (LH) Date Recommended: 02/06/

11 Date Re-evaluated: 03/03/2013 Company Update LabCorp has launched its clinical next generation sequencing assay, GeneSeq: Cardio, for familial cardiac disease. It embraces new technologies to further the ability to service patients. Relative Performance The stock has underperformed relative to the sector but managed to outperform the market. By itself, the LH had a change of -1.03% through the review period. This change from $89.41 to $88.49 is hardly noticeable, but still something to watch. Price Charts Three Month Chart One Year Chart 11

12 Valuations Analysis Original Analysis Re-evaluation Analysis VALUATION RATIOS Company Industry Sector 12

13 P/E Ratio (TTM) Price to Sales (TTM) Price to Book (MRQ) Price to Cash Flow (TTM) The figures have not changed much between the periods. The sector s P/S is all that really changed, going from 5.93 to This is not surprising though because it has only been a few weeks. Historical Surprises Original Analysis Re-evaluation Analysis HISTORICAL SURPRISES Sales and Profit Figures in US Dollar (USD) Earnings and Dividend Figures in US Dollar (USD) 13

14 Estimates vs Actual Estimate Actual Difference Surprise % SALES (in millions) Quarter Ending Dec-12 1, , Quarter Ending Sep-12 1, , Quarter Ending Jun-12 1, , Quarter Ending Mar-12 1, , Quarter Ending Dec-11 1, , Earnings (per share) Quarter Ending Dec Quarter Ending Sep Quarter Ending Jun Quarter Ending Mar Quarter Ending Dec The recent quarterly report showed positive surprises in sales and earnings. Consensus Estimates Original Analysis 14

15 Re-Evaluation Analysis CONSENSUS ESTIMATES ANALYSIS Sales and Profit Figures in US Dollar (USD) Earnings and Dividend Figures in US Dollar (USD) # of Estimates Mean High Low 1 Year Ago SALES (in millions) Quarter Ending Mar , , , , Quarter Ending Jun , , , , Year Ending Dec , , , , Year Ending Dec , , , , Earnings (per share) Quarter Ending Mar Quarter Ending Jun

16 Year Ending Dec Year Ending Dec LT Growth Rate (%) There were only slight fluctuations in estimates here as well because of how recent the last review was. Estimate Revision Analysis Original Analysis Re-Evaluation Analysis ESTIMATES REVISIONS SUMMARY Last Week Last 4 Weeks Number Of Revisions: Up Down Up Down Revenue Quarter Ending Mar

17 Quarter Ending Jun Year Ending Dec Year Ending Dec Earnings Quarter Ending Mar Quarter Ending Jun Year Ending Dec Year Ending Dec The last week has seen mostly downward revisions and the previous four weeks had more revisions up for sales and down for earnings. Overall, the estimates seem more bearish. Analysts Recommendations Original Analysis Re-Evaluation Analysis ANALYST RECOMMENDATIONS AND REVISIONS 1-5 Linear Scale Current 1 Month 2 Month 3 Month 17

18 Ago Ago Ago (1) BUY (2) OUTPERFORM (3) HOLD (4) UNDERPERFORM (5) SELL No Opinion Mean Rating The mean rating has gone down 0.01, with one less hold recommendation. Again, almost no change here. Company #3: Gilead Sciences Inc. Date Recommended: 02/11/2013 Date Re-evaluated: 03/03/2013 Company Update There were not any groundbreaking headlines in this review period, although GILD did present postitive HCV data which could project well for the future. Relative Performance GILD performed very well in the two week period. It outperformed both the sector and market by more than 4% and had an increase in 3.48% in its price. Price Charts Three Month Chart 18

19 One Year Chart Valuations Analysis Original Analysis 19

20 Re-evaluation Analysis VALUATION RATIOS Company Industry Sector P/E Ratio (TTM) Price to Sales (TTM) Price to Book (MRQ) Price to Cash Flow (TTM) The industry saw a significant decrease in P/S and doubled P/CF. The sector s P/S doubled as well. Those were the only noticeable changes. Historical Surprises Original Analysis 20

21 Re-evaluation Analysis HISTORICAL SURPRISES Sales and Profit Figures in US Dollar (USD) Earnings and Dividend Figures in US Dollar (USD) Estimates vs Actual Estimate Actual Difference Surprise % SALES (in millions) Quarter Ending Dec-12 2, , Quarter Ending Sep-12 2, , Quarter Ending Jun-12 2, ,

22 Quarter Ending Mar-12 2, , Quarter Ending Dec-11 2, , Earnings (per share) Quarter Ending Dec Quarter Ending Sep Quarter Ending Jun Quarter Ending Mar Quarter Ending Dec There were no changes. Consensus Estimates Original Analysis 22

23 Re-Evaluation Analysis CONSENSUS ESTIMATES ANALYSIS Sales and Profit Figures in US Dollar (USD) Earnings and Dividend Figures in US Dollar (USD) # of Estimates Mean High Low 1 Year Ago SALES (in millions) Quarter Ending Mar , , , , Quarter Ending Jun , , , , Year Ending Dec , , , ,

24 Year Ending Dec , , , , Earnings (per share) Quarter Ending Mar Quarter Ending Jun Year Ending Dec Year Ending Dec LT Growth Rate (%) Sales estimates raised a little, but mostly there was no change. The report was too recent. Estimate Revision Analysis Original Analysis 24

25 Re-Evaluation Analysis ESTIMATES REVISIONS SUMMARY Last Week Last 4 Weeks Number Of Revisions: Up Down Up Down Revenue Quarter Ending Mar Quarter Ending Jun Year Ending Dec

26 Year Ending Dec Earnings Quarter Ending Mar Quarter Ending Jun Year Ending Dec Year Ending Dec There were not any revisions in the last week. Prior to that, the last 4 weeks and the original review are almost identical. Analysts Recommendations Original Analysis Re-Evaluation Analysis ANALYST RECOMMENDATIONS AND REVISIONS 26

27 1-5 Linear Scale Current 1 Month Ago 2 Month Ago 3 Month Ago (1) BUY (2) OUTPERFORM (3) HOLD (4) UNDERPERFORM (5) SELL No Opinion Mean Rating There was one change from a buy to outperform, changing the mean rating to 1.69 from Again, it was a very small change. Section (C) Sector Recommendations Ultimately, I believe that there is more potential for growth in the sector. I am bullish on the healthcare sector and I recommend that we stay put with our current holdings, but I do recommend some of the stop-loss and target prices be altered. WellPoint was doing very well, and started this review period at $66, but has since dropped by 6.33%. I did think we should have sold it when it was pushing the target price of $68, but we have since missed that. With that being said, I don t think this is the time to sell out of the stock. WLP has shown it is capable of reaching that number so rather than sell it now I recommend we hold it while also bumping up the stop-loss price to $56. I think the stock does still have potential to grow some with favorable earnings reports and projections. From my readings on Yahoo and Reuters, most analysts agree with me and their recommendations reflect that. 27

28 I think that LabCorp needs a little more time to develop an opinion on, but in the meantime it is a good stock to hold on to and should be left alone. Gilead was just bought and has performed well so far, but I do feel that the range should be narrowed. I think raising the stop-loss by $3 and lowering the target price by $3 would give a more realistic goal to the stock. Section (D) Sector Holding Recommendations Company Name Ticker Symbol Date Recommended Date Reevaluated Recommendation (Explain Why) Sell Adjust Target Price Adjust Stoploss Price WellPoint WLP 10/30/ /03/2013 No No $56.00 Laboratory Corp. of America Holdings LH 02/06/ /03/2013 No No No Gilead Sciences Inc. GILD 02/11/ /03/2013 No $45.00 $ I do not recommend that any of the current holding be sold immediately. 2. I recommend that the target price for Gilead be lowered from $48 to $45. The reason for this is I feel that the range needs to be narrowed. GILD has increased by almost $2 just in this review period, but I don t see it continuing to significantly rise. I think $45 is a realistic goal and the profit should be taken if it reaches that point. 28

29 3. As mentioned before, I recommend the stop-losses for WellPoint and Gilead be raised to $56 and $38, respectively. Both of these allow us to cut our losses at a more favorable point if need be. 29

30 Sources: Finance.yahoo.com Reuters.com Scoop.nz.com Economictimes.com Thestreet.com 30