Healthcare Sector The Stock Market SIM, Professor West. Yiping Yang, Lu Yu

Transcription

1 Healthcare Sector The Stock Market SIM, Professor West Yiping Yang, Lu Yu 1

2 Agenda Sector Overview Business and Economic Analysis Financial Analysis Valuation Analysis Recommendation 2

3 Sector Overview Sector Size: $4.97 T Market Cap Weighting of Market: 15.1% 3 rd largest weight 3

4 Sector Overview Industries within Healthcare Sector Pharmaceuticals Biotechnology Health Care Providers & Services Health Care Equipment & Supplies Health Care Technology Life Sciences Tools & Services 4

5 Sector Overview Largest by Market Cap in Healthcare Sector Company Market Cap ($B) 1) Johnson & Johnson ) Novartis AG ) Pfizer, Inc ) Gilead Sciences ) Merck & Company, Inc ) Novo Nordisk A/S ) Sanofi ) Amgen, Inc ) CVS Health Corporation ) Allergan plc

6 Sector Overview 6

7 Sector Overview Healthcare Sector Performance Year-to-Date: 11.39% returns Quarter-to-Date: 2.75% returns Best performing sector over the past few years 7

8 Sector Overview Citation: 8

9 Business & Economic Analysis Economy Outlook U.S. economy: mid-cycle expansion expectations to grow, jobs, healthcare spend Strong U.S. Dollar exposure to FX risk Low inflation Plunge in oil prices lower raw material and distribution cost 9

10 Business & Economic Analysis Business Analysis Defensive industry Relatively inelastic demand Consolidation among companies 10

11 Business & Economic Analysis 5 Forces Analysis: Barriers to Entry High Pharma/Biotech: huge upfront investment, high requirement on research Health insurance: large consumer base, brand, network 11

12 Business & Economic Analysis 5 Forces Analysis: Power of Suppliers Low Fragmented industry Low switching costs Many suppliers 12

13 Business & Economic Analysis 5 Forces Analysis: Power of Buyers Low Pharma/Biotech: pharmacies, retailers Health insurance: policyholders, through employers 13

14 Business & Economic Analysis 5 Forces Analysis: Intensity of Rivalry High Especially in generic drugs Patented drug is monopoly Race for new drugs M&A activity may increase though 14

15 Business & Economic Analysis 5 Forces Analysis: Substitutes Low Health services is a necessity Alternative therapies not viable 15

16 Business & Economic Analysis 5 Forces Analysis: Summary Attractive Industry Good for established players Hard for newcomers and smaller companies Competition/Consolidation/ACA may impact margins 16

17 Business & Economic Analysis External Factors Patient Protection and Affordable Care Act (Obamacare) Members/Coverage, Exchanges King v. Burwell Regulations FDA regulations Slowing patent expirations Expanded coverage 17

18 Business & Economic Analysis Users and Geography Aging global population Expanding middle market in developing countries 18

19 Financial Analysis Key Observations Increasing revenues Free cash flow generator Shrinking margins Lower margin than the market 19

20 Valuation Analysis Healthcare Sector CY 2009 CY 2010 CY 2011 CY 2012 CY 2013 CY 2014 P/E P/B P/S P/CF Gross Margin Operating Margin Profit Margin ROE

21 Valuation Analysis Current ratios P/E P/B P/S P/CF S&P Healthcare IT Financials Materials Telecom Utilities Cons. Discret Cons. Staples Industrials Energy

22 Valuation Analysis Fastest Expanding Industry In terms of multiples Horizontally and vertically Due to economy recovery and regulations 22

23 Recommendation Strengths Outstanding performance Sound fundamentals Defensive nature Advantageous regulations Consolidations 23

24 Recommendation Risks High valuation overvalue/bubbles Demand in foreign markets Uncertainty on ACA/regulations Anti-trust issues among consolidations 24

25 Recommendation Weighting Recommendation Portfolio: Cautiously Overweight Healthcare Sector Overweight industry: Healthcare Provider & Services Underweight industry: Healthcare Equipment & Supplies 25

26 Questions? 26

27 Thank You! 27