CIF Sector Recommendation Report (Spring 2013)

Transcription

1 Date: 4/1/2013 Analyst: Jacob Allen CIF Sector Recommendation Report (Spring 2013) Sector: Healthcare Review Period: 3/13/2013 3/26/2013 Section (A) Sector Performance Review Copy/paste Sector Review Spreadsheet (the entire spreadsheet) here 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 HealthCare 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 $45.32 $ % 2300 $104, % Current Holdings WLP $64.76 $64.84 $56.00 $ % 330 $21, % -0.72% GILD $45.76 $45.87 $38.00 $ % 920 $42, % -0.83% LH $89.14 $89.22 $82.00 $ % 120 $10, % -0.68% ESRX $58.41 $59.54 $49.50 $ % 660 $38, % -2.49% Review sector performance relative to the broad market (SP500) and explain why; Include a two-week (for the two-week window reviewed) price chart of the SPDR sector ETF and SP500 (on the same chart) Both the overall market and the XLV went up during the two-week review period. There has been a bullish run since the beginning of the year and this continues to push the market higher. With the Fed keeping interest rates low, there is more money to be made in the stock market. This accounts to larger amount of people investing in the market which in turn pushes the market higher. 1

2 While the S&P has risen, the XLV has gone up 0.16% higher than the market. This is largely due to the Biotech industry and their recent large gains. The Biotech industry has had a lot of good news recently pushing itself and the entire healthcare sector upwards. Highlight noteworthy headline news from the sector (company-, industry-, or sector- level news) GILD hits record highs after analyst says sales estimates must go way way up on its experimental hepatitis C therapy. ( 28/gilead-hits-record-high-on-analyst-s-view-of-higher-sales) BIIB rose to record price after it won U.S. approval for its first pill for multiple sclerosis, Tecfidera. ( Biotech is the next big Pharma industry. They are the future of the drug making industry and could be the best growth industry in the market. ( Highlight the biggest (+) and the biggest (-) movers from the sector holdings during the review period. Are there notable reasons why the stocks had big moves (e.g., earnings surprises, etc)? 2

3 Biggest Gainers o Repros Therapeutics (RPRX) (76.34%) FDA approved drug that treats symptoms of low testosterone ( o Neurocrine Biosciences (NBIX) (6.72%) Announced Phase 2 trials of elagolix for the treatment of uterine fibroids ( o Biogen Idec (BIIB) (5.44%) Revived US approval of MS drug ( Biggest Losers o Idenix Pharmaceuticals (IDIX) (-4.07%) Loses to GILD in patent dispute ( o Amedisys Inc (AMED) (-3.39%) Posted Q4 loses following $162M goodwill charge ( Highlight the largest two holdings from the sector and note any headline news on the companies Johnson & Johnson (JNJ) o FDA approves JNJ diabetes drug, Canagliflozin. ( Pfizer Inc. (PFE) o PFE fails to end shareholder lawsuit over Bextra and Celebrex safety. Shareholders are accusing the company of fraduently misrepresenting the safety of these two pain-relieving drugs. ( Comment on short-term outlook of the sector (including noteworthy upcoming events) The short-term outlook of the sector looks very promising. CNBC analyst Chris Verrone believes that the HC sector is a winning sector that will continue to grow and push the market even higher ( Also, with the recent news out of the Biotech industry, there is great potential in many of the sectors largest holdings, such as GILD, CELG, and BIIB. Section (B) Sector Holding Updates 3

4 Company #1: WellPoint (WLP) Date Recommended: 10/30/2012 Date Re-evaluated: 4/1/2013 Company Update Over the past two weeks there has been very little change. The price is down 0.12% but has risen since the two week review period. I found no significant news about them during the review period. Relative Performance Over the review period WLP has performed under the XLV as well as the S&P, but just by a little bit. In the two weeks it is down 0.12% but has climbed recently. It followed the same trend as the other holdings, which were all down during the review period. Price Charts 4

5 Valuations Analysis Original Analysis Ratio Analysis Company Industry Sector P/E (TTM) P/S (TTM) P/B (MRQ) P/CF (TTM) Dividend Yield 1.8%.8% 2.1% Total Debt/Equity (MRQ) Net Profit Margin (TTM) ROA (TTM) ROE (TTM) Re-evaluation Analysis Copy/paste the requested valuation multiples from Financials tab Company Industry Sector 5

6 P/E Ratio (TTM) Price to Sales (TTM) Price to Book (MRQ) Price to Cash Flow (TTM) Dividend Yield Total Debt to Equity (MRQ) Return on Assets (TTM) Return on Equity (TTM) Net Profit Margin (TTM) Overall, their ratios have decreases slightly, a bullish indicator. With lower ratios than before it could be said that there is an expectation of an increase in stock price. Their dividend yield and net profit margin have gone up which is good for the current shareholders. By looking at the ratios now compared to the originals, WLP is worth more than it was six months ago. Historical Surprises Original Analysis Sales and Profit Figures in US Dollar (USD) Earnings and Dividend Figures in US Dollar (USD) Estimates vs Actual SALES (in millions) Jun-12 Mar-12 Estimate Actual Difference Surprise % 15, , , ,

7 Dec-11 Sep-11 Jun-11 Earnings (per share) Jun-12 Mar-12 Dec-11 Sep-11 Jun-11 15, , , , , , Re-evaluation Analysis 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) Dec-12 15, , Sep-12 15, , Jun-12 15, , Mar-12 15, , Dec-11 15, , Earnings (per share) Dec Sep Jun

8 Mar Dec The past two quarters since recommendation have seen negative surprises in revenue but positive surprises in earnings. The most notable surprises is in earnings, especially for the quarter ending September 12, where estimates were 1.84 but the actual came out to be Consensus Estimates Original Analysis # of Estimates Mean High Low 1 Year Ago SALES (in millions) Quarter Ending Dec- 12 Quarter Ending Mar- 13 Year Ending Dec-12 Year Ending Dec-13 Earnings (per share) Quarter Ending Dec- 12 Quarter Ending Mar- 13 Year Ending Dec-12 Year Ending Dec-13 LT Growth Rate (%) 12 15, , , , , , , , , , , , , , , , Re-Evaluation Analysis # of Estimates Mean High Low 1 Year Ago 8

9 SALES (in millions) Mar , , , , Jun , , , , Year Ending Dec , , , , Year Ending Dec , , , , Earnings (per share) Mar Jun Year Ending Dec Year Ending Dec LT Growth Rate (%) Revenue and LT Growth Rate estimates are both up significantly compared to when WLP was recommended a buy. However the earnings estimates have all decreased. I believe this is because analysts expect higher sales but also higher expenses and inflation, this would lead to reduced earnings. Estimate Revision Analysis Original Analysis (MM/DD/YYYY) Last Week Number Of Revisions: Revenue Dec-12 Mar-13 Year Ending Dec-12 Last 4 Weeks Up Down Up Down

10 Year Ending Dec-13 Earnings Dec-12 Mar-13 Year Ending Dec-12 Year Ending Dec Re-Evaluation Analysis Last Week Last 4 Weeks Number Of Revisions: Up Down Up Down Revenue Mar Jun Year Ending Dec Year Ending Dec Earnings Mar Jun Year Ending Dec Year Ending Dec

11 Six months ago when WLP was recommended, there were a few analysts who were upgrading their revenues but there were also few who were decreasing their earnings estimates. In the new review, not one analyst has made a revision of their estimates in the past four weeks or present week. Analysts Recommendations Original Analysis 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 Re-Evaluation Analysis 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 The analysts have become more bullish since WLP recommendation. Originally the overall rating was a 2.0 and it is currently at a There are also many more analysts recommending 11

12 a hold on WLP and one saying it will underperform. This is a bearish indicator and possibly a sign that it is time the CIF sells out of WLP. Company #2: Gilead Sciences (GILD) Date Recommended: MM/DD/YYYY Date Re-evaluated: MM/DD/YYYY Company Update Over the past two weeks there has been some great news for GILD. The EU approved its most recent HIV drug, Stribilid. While over the two week period GILD was down 0.24%, there is no concern because it has so much room for revenue growth over the coming years. In fact the price is currently hovering around $49. However, we have recently sold GILD when it reached its target price of $45. Many analysts believe GILD to be a great long-term stock with an enormous potential, similar to other large-cap biotech companies like CELG and BIIB. Relative Performance GILD is down compared to the XLV and S&P during the two week review period but that is not concerning considering it is now currently trading around $49. The reason it was down was because after some good news at the beginning of the week, investors felt like the market was getting ahead of themselves with GILD and the price dropped. Once the news of Stribilid approval from the EU came out, GILD jumped 4% that day, the day after my review period ends. 12

13 Price Charts Valuations Analysis Original Analysis Ratio Analysis Company Industry Sector P/E (TTM) P/S (TTM)

14 P/B (MRQ) P/CF (TTM) Dividend Yield N/A Total Debt/Equity N/A (MRQ) Net Profit Margin (TTM) ROA (TTM) ROE (TTM) Re-evaluation Analysis P/E Ratio (TTM) Price to Sales (TTM) Price to Book (MRQ) Price to Cash Flow (TTM) Dividend Yield Total Debt to Equity (MRQ) Net Profit Margin (TTM) , Return on Assets (TTM) Return on Equity (TTM) Their ratios have all gone up slightly since the recommendation in February. This is because the price of GILD has increased so much since that time making it less undervalued. The net profit margin and ROA are exactly the same as they were which is not bad considering they are strong numbers. The ROE has increased since the original recommendation which is a positive sign about management effectiveness. Historical Surprises Original Analysis HISTORICAL SURPRISES Estimates vs Actual Estimate Actual Difference Surprise % SALES (in millions) 14

15 Dec- 12 Sep- 12 Jun- 12 Mar- 12 Dec- 11 Earnings (per share) Dec- 12 Sep- 12 Jun- 12 Mar- 12 Dec- 11 2, , , , , , , , , , Re-evaluation Analysis SALES (in millions) Dec-12 2, , Sep-12 2, , Jun-12 2, , Mar-12 2, , Dec-11 2, , Earnings (per share) Dec Sep Jun Mar Dec The numbers are the exact same. There has not been an earnings report since the recommendation and therefore there are no changes in historical surprises. 15

16 Consensus Estimates Original Analysis # of Estimates Mean High Low 1 Year Ago SALES (in millions) 18 2, , , , Mar , , , , Jun-13 Year Ending 28 10, , , , Dec-13 Year Ending Dec , , , , Earnings (per share) Mar Jun-13 Year Ending Dec-13 Year Ending Dec-14 LT Growth Rate (%) Re-Evaluation Analysis # of Estimates Mean High Low 1 Year Ago SALES (in millions) Mar , , , , Jun , , , , Year Ending Dec , , , , Year Ending Dec , , , , Earnings (per share) Mar Jun Year Ending Dec

17 Year Ending Dec LT Growth Rate (%) In the short amount of time since GILD s recommendation, analyst s estimates have slightly increased. This is because of the recent growth of GILD s stock price as well as the news of EU approval of its new HIV drug that is expected to lead the market. Estimate Revision Analysis Original Analysis (MM/DD/YYYY) ESTIMATES REVISIONS SUMMARY Last 4 Weeks Last Week Number Of Up Down Up Down Revisions: Revenue Mar Jun-13 Year Ending Dec Year Ending Dec Earnings Mar Jun-13 Year Ending Dec Year Ending Dec Re-Evaluation Analysis Revenue Mar Jun Year Ending Dec Year Ending Dec Earnings 17

18 Mar Jun Year Ending Dec Year Ending Dec The major difference between the original evaluation and this one is that there are far fewer analyst making revisions. However the trend is the same. Many analysts are increasing their estimates due to the positive news about GILD and the biotech industry in general. Analysts Recommendations Original Analysis ANALYST Current 1 Month Ago 2 Month Ago 3 Month Ago RECOMMENDA TIONS AND REVISIONS 1-5 Linear Scale (1) BUY (2) OUTPERFORM (3) HOLD (4) UNDERPERFORM (5) SELL No Opinion Mean Rating 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

19 (5) SELL No Opinion Mean Rating The mean rating from the original recommendation to now has gone from 1.66 to A small change but still a bit bearish. I believe this is because of GILD recent run up. Analysts believe that since it has gone so high the window of opportunity has passed and it may not be the best time to buy GILD because of its recent run. The reason for the increase in mean is from analysts changing from buy to outperform. The mean rating of 1.73 is still very bullish. Company #3: Laboratory Corporation of America Holdings (LH) Date Recommended: 2/11/2013 Date Re-evaluated: 4/1/2013 Company Update On April 1, LH will appoint Adam Schechter, Executive Vice President and President, Global Human Health, Merck, to its Board of Directors. He is one of the most senior executives at a global healthcare leader in prescription medicines, vaccines, biologic therapies, and consumer care ( Relative Performance LH s performance came in at -0.09% for the two week review period. This is below both the XLV and S&P. I could not find any reason for this loss; however LH stock has been extremely volatile for the past year with influxes very high and very low. It is currently sitting in the middle ground of these influxes. 19

20 Price Charts Valuations Analysis Original Analysis 20

21 Analysis Company Industry Sector P/E (TTM) P/S (TTM) P/B (MRQ) P/CF (TTM) Dividend Yield Total Debt/Equity (MRQ) Net Profit Margin (TTM) ROA (TTM) ROE (TTM) Re-evaluation Analysis P/E Ratio (TTM) Price to Sales (TTM) Price to Book (MRQ) Price to Cash Flow (TTM) Dividend Yield Total Debt to Equity (MRQ) Net Profit Margin (TTM) Return on Assets (TTM) Return on Equity (TTM) All the ratios have increased slightly since the recommendation date. The most notable difference however, is that ROA, ROE, and profit margin has all decreased. This is a bearish sign that management is not as effective as they once were. Historical Surprises Original Analysis 21

22 Estimates vs Estimate Actual Difference Surprise % Actual SALES (in millions) 1, , Sep-12 1, , Jun-12 1, , Mar-12 1, , Dec-11 Sep-11 1, , Earnings (per share) Sep Jun Mar Dec-11 Sep Re-evaluation Analysis Estimates vs Actual Estimate Actual Difference Surprise % SALES (in millions) Dec-12 1, , Sep-12 1, , Jun-12 1, , Mar-12 1, , Dec-11 1, , Earnings (per share) Dec Sep Jun Mar Dec

23 There has only been one earnings report since the recommendation and LH beat estimates for both earnings and revenue. This was good for LH as their share price rose the same day the positive results came out. Consensus Estimates Original Analysis # of Estimates Mean High Low 1 Year Ago SALES (in millions) Quarter 12 1, , , , Ending Mar-13 Quarter 12 1, , , , Ending Jun-13 Year Ending Dec , , , , Earnings (per share) Quarter Ending Mar-13 Quarter Ending Jun-13 Year Ending Dec-13 LT Growth Rate (%) Re-Evaluation Analysis # of Estimates Mean High Low 1 Year Ago SALES (in millions) Mar , , , , Jun , , , , Year Ending Dec , , , , Year Ending Dec , , , , Earnings (per share) Mar Jun Year Ending Dec

24 Year Ending Dec LT Growth Rate (%) All the estimates have been reduced since the recommendation. Revenue, earnings and LT growth rate alike have all been reduced. This may be due in part to the Affordable Health Care Act which may have adverse effects on LH. Estimate Revision Analysis Original Analysis (MM/DD/YYYY) Last Week Number Of Revisions: Revenue Mar-13 Jun-13 Year Ending Dec-13 Earnings Mar-13 Jun-13 Year Ending Dec-13 Re-Evaluation Analysis Last 4 Weeks Up Down Up Down Last Week Last 4 Weeks Number Of Revisions: Up Down Up Down Revenue Mar Jun Year Ending Dec Year Ending Dec Earnings 24

25 Mar Jun Year Ending Dec Year Ending Dec The trend has changed from when LH was originally recommended. Originally there were more down revisions than up revisions. This has changed and now there are more up revisions for both revenue and earnings in the past four weeks and past week combined. This could be because LH beat estimates the previous quarter and provided a positive outlook for the remainder of the year, causing analysts to up their estimates. Analysts Recommendations Original Analysis 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 Re-Evaluation Analysis 1-5 Linear Scale Current 1 Month Ago 2 Month Ago 3 Month Ago (1) BUY (2) OUTPERFORM (3) HOLD (4) UNDERPERFORM (5) SELL

26 No Opinion Mean Rating There have been no significant changes. Analysts have been somewhat bearish on the stock with a 2.95 rating and that sentiment continues, with 3 analysts giving a underperform evaluation and a majority giving a hold recommendation. Company #4: Express Scripts Holdings Co (ESRX) Date Recommended: MM/DD/YYYY Date Re-evaluated: MM/DD/YYYY Company Update Nothing in particular occurred during the two week review period involving ESRX. Relative Performance ESRX performed both below the S&P and XLV. It also had the worst performance of all the holdings with a -1.90% decline over the review period. This is not too concerning though; it is still positive overall in the CIF and many analysts rate it as a buy. 26

27 Price Charts Valuations Analysis Original Analysis Ratio Analysis Company Industry Sector P/E (TTM)

28 P/S (TTM) P/B (MRQ) P/CF (TTM) Dividend Yield Total Debt/Equity (MRQ) Net Profit Margin (TTM) ROA (TTM) ROE (TTM) Re-evaluation Analysis P/E Ratio (TTM) Price to Sales (TTM) Price to Book (MRQ) Price to Cash Flow (TTM) Dividend Yield Total Debt to Equity (MRQ) Net Profit Margin (TTM) Return on Assets (TTM) Return on Equity (TTM) The ratios have all increased slightly. This is due to the increase in stock price; it is not as cheap as it was when it was recommended. However, profit margin and ROA are down and ROE is down significantly since the original recommendation date. Historical Surprises Original Analysis 28

29 Re-evaluation Analysis Estimates vs Actual Estimate Actual Difference Surprise % SALES (in millions) Dec-12 27, , Sep-12 27, , Jun-12 26, , , Mar-12 11, , Dec-11 11, , Earnings (per share) Dec Sep Jun

30 Mar Dec There have been no earnings dates since the recommendation and therefore there are no differences in the suprises. Consensus Estimates Original Analysis Re-Evaluation Analysis # of Estimates Mean High Low 1 Year Ago SALES (in millions) Mar , , , , Jun , , , , Year Ending Dec , , , , Year Ending Dec , , , , Earnings (per share) Mar Jun

31 Year Ending Dec Year Ending Dec LT Growth Rate (%) Revenue estimates have very slightly increased but that is the only difference. Because this stock was recommended only a month ago there is not much difference between now and then. Estimate Revision Analysis Original Analysis (MM/DD/YYYY) Re-Evaluation Analysis Last Week Last 4 Weeks Number Of Revisions: Up Down Up Down 31

32 Revenue Mar Jun Year Ending Dec Year Ending Dec Earnings Mar Jun Year Ending Dec Year Ending Dec The difference from the recommendation date until now is the amount of revisions. A month ago when ESRX was recommended there were a lot of revisions both up and down. Currently there is only 1 up revision and only 1 down revision for earnings. There have been no new revisions for revenue. 32

33 Analysts Recommendations Original Analysis Re-Evaluation Analysis 1-5 Linear Scale Current 1 Month Ago 2 Month Ago 3 Month Ago (1) BUY (2) OUTPERFORM (3) HOLD (4) UNDERPERFORM (5) SELL

34 No Opinion Mean Rating There have been no changes in the analysts recommendations. They still remain at a bullish 1.86 Section (C) Sector Recommendations The CIF should continue holding onto the XLV. It has had good growth since the beginning of the year and with the booming biotech industry combined with the bull market it should continue to climb higher. It has also been one of the most profitable ETFs we own with a cumulative P/L of 11.96% as of 3/26/13. Analysts believe that healthcare will continue to rise and I would agree with that assessment. Section (D) Sector Holding Recommendations Based on your analysis, are there stocks CIF currently owns from your sector you would recommend to: 1. Sell and why? 2. Adjust target price and why? If you recommend an adjustment, you must suggest a new target price 3. Adjust stop-loss price and why? If you recommend an adjustment, you must suggest a new stop-loss price 34

35 Provide your recommendations in the following table Company Name Ticker Symbol Date Recommended Date Reevaluated WellPoint WLP 10/30/12 4/1/13 Gilead Sciences GILD 2/11/13 4/1/13 X Sell Recommendation (Explain Why) Adjust Target Price ALREADY SOLD Adjust Stoploss Price LabCorp of America Holdings LH 2/13/13 4/1/13 NO NO NO Express Scripts ESRX 2/27/13 4/1/13 NO NO NO I recommend selling WellPoint. The reason for this is because it is currently at its highest levels since the CIF purchased in back in October. The last time it reached $66 it dropped down to $61 a few days later. While there is a chance that it continues to rise, I do not believe it will show significant growth or reach the current target price of $68. If we hold on to WLP we run the risk of the price dropping off again. In comparison to the XLV, it has not performed as well thus should be sold. With the XLV doing better than WLP and its current price at a high since we bought it, I believe it would be in the benefit of the CIF to sell WLP at its current price and take the profit while it is there. It closed Friday 3/29/13 at $ If the class votes to sell and the trade is executed at this price the CIF has made an 8.56% gain on WLP. This is a good gain and it is my belief that the CIF should take it while the opportunity is there. If the price drops there is no telling when it will get this high again. 35