CIF Sector Recommendation Report (Spring 2013)

Transcription

1 Date: 2/19/13 Analyst: Joseph Brendel CIF Sector Recommendation Report (Spring 2013) Sector: Health Care (XLV) Review Period: February 1- February 14 Section (A) Sector Performance Review Copy/paste Sector Review Spreadsheet (the entire spreadsheet) here 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) Over my review period, the Health Care sector (XLV) performed slightly worse than the S&P 500. During this period, the XLV underperformed the S&P 500 by %, while still earning a slightly positive return. 1

2 From the graph, it shows that the S&P 500 outperformed the sector. Also in this graph, it shows that both the XLV and the S&P 500 achieved positive returns. Highlight noteworthy headline news from the sector (company-, industry-, or sector- level news) - Health Care companies are looking to expand their operations in order to utilize cloud computing. In order to do this, they have to improve their security measures so that information is not stolen electronically. (infoworld.com) 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)? - Over my review period, the three biggest (+) movers were Perrigo Co (PRGO) at 12.59%, Cerner Corp (CERN) at 6.48% and St Jude Medical Inc (STJ) at 5.68%. - Perrigo Co s (PRGO) strong growth might be because investors see the company s $283 million acquisition of Rosemart Pharmaceuticals Ltd as a good thing for the company. This acquisition was announced on February 11, 2013, which puts it right in the middle of my review period. The acquisition was financed entirely through the use of cash; which might be why the stock s price jumped. The company had just a bunch of cash sitting on their balance sheet doing 2

3 nothing, so by acquiring the company, investors may have seen it as a positive alternative to expand the company instead of just sitting on the cash. - Cerner Corp s (CERN) growth is almost entirely due to the company s record high earnings during the 4 th Quarter of The company s earnings grew 22.6% from their last Quarter and the earnings were announced towards the beginning of my review period, on February 5, This is a positive development for the company for the long- term, because the earnings report is a positive sign for the future growth of the company. - St Jude Medical Inc s (STJ) positive growth over the period is due to their positive surprise in Quarter- 4 earnings. I do not believe this will matter much for the company because on February 12, 2013, they announced they were recalling a wire that is used in heart procedures. Since the end of my review period, the stock s price has dropped over $1.50 per share. - The three biggest (- ) movers were Hospira Inc (HSP) at %, Alexion Pharmaceuticals Inc (ALXN) % and Merck & Co Inc (MRK) at %. - Hospira INC s (HSP) decline can be attributed to the FDA finding mold in one of its electrolyte solutions on January 28, This forced Hospira to recall the product until more tests could be done. The FDA also put a temporary ban on the importing of this product until the problem was resolved. This issue looks to hurt the company in the near future, but should not have any long- term effects, unless more defects are found. - Alexion Pharmaceuticals Inc s (ALXN) decline is more confusing than the other two, as they release their earnings on February 14, 2013 and had beaten many analyst expectations. Since there is nothing else in the news about the company, I believe that the decline may have been caused by investors excepting the earnings report to be less positive than it wound up being. For this reason, I believe the company should recover somewhat quickly from this dip and not experience lingering effects. - Merck & Co Inc s decline is most likely attributable to the fact that on February 14, 2013, they announced that they were going to be paying $688 million in order to settle two law suits dealing with their study that they did on their Enhance drug. This dropped their 4 th Quarter profit per share in 2012 from $0.46 down to $0.30. This is a significant development, because 30 cents per share is a decrease of just over 33% when compared to 46 cents per share. I do not believe that this development will hurt Merck & Co Inc (MRK) in the long- term, just the short- term. 3

4 Highlight the largest two holdings from the sector and note any headline news on the companies - The largest two holdings in the sector (XLV) are Johnson & Johnson (JNJ) and Pfizer (PFE). Johnson & Johnson has a market cap of $ Billion and Pfizer has a market cap of $ Billion. - Johnson & Johnson (JNJ) announced on February 14, 2013 that they would be recalling several metal hip implants that were sold internationally. They had previously recalled a similar product in 2010 in the U.S. Johnson & Johnson had already set aside $3 billion in order to deal with this issue, so this announcement should not affect them much in the long- term. The only issue I can think of would be having to deal with lawsuits and recalls in excess of $3 billion. - Another development for Johnson & Johnson is that they lost a lawsuit over Motrin that will cost them $63 million. This might cause the stock price to dip in the short- term, but should have no long lasting effects as $63 million is not that significant for a company with a market cap of $ Billion. - Pfizer s animal health subsidiary, Zoetis, became the largest IPO since Facebook on February 1, This is a positive development for the company, because it shows they still have room to expand in different lines of businesses. The long- term effects might not affect Pfizer as much, because the company now has its own stock ticker. Comment on short- term outlook of the sector (including noteworthy upcoming events) - The short- term outlook of the Health Care sector (XLV) appears to be pretty good. There are not many major developments going on for the sector, so as a result, they could look to grow over the next coming months. Additionally, there is not much planned that will affect the Health Care sector except for maybe Obamacare. However, most investors are well aware of how Obamacare will affect the Health Care sector so this is not something that will affect the stocks in the short- term. Section (B) Sector Holding Updates Company #1: Laboratory Corporation of America Holdings (LH) Date Recommended: 02/06/2013 (Re- evaluated on 02/13/2013) 4

5 Date Re- evaluated: 02/19/2013 Company Update Briefly update what happened to the company the last two weeks (up through your re- evaluation date). This should include noteworthy headline news on the stock (e.g., earnings announcement, management s comments on company outlook and/or strategic changes, changes in analyst recommendations or estimate revisions, new product launch, management turnover, legal or regulatory issues, merger/acquisition announcement, restructure announcement, news from major competitors, etc.) - The company has not had any major news stories since the company was re- evaluated, after further research, on February 13, There was not enough time for the company to experience any major changes, because my review period ended the day after this stock was re- evaluated. Relative Performance Review relative performance of each sector holding, over the two- week review period, both relative to the SP500 and to the respective SPDR sector ETF. Relate your comments on relative performance to the updates discussed above. - The stock Laboratory Corporation of America Holdings (LH) underperformed both the S&P 500 and the sector over my review period. The stock experienced a decrease of 1.35% in its total value during this period, so it was not a very good two- weeks for the company. Price Charts Insert a price chart of the stock for the most recent three months. You should include on the same chart (1) the SPDR sector ETF, (2) and the SP500 prices for the same period 5

6 Insert a price chart of the stock for the most recent one year. You should include on the same chart (1) the SPDR sector ETF, (2) and the SP500 prices for the same period Valuations Analysis Original Analysis Copy/paste P/E (TTM), P/S (TTM), P/B (MRQ), P/CF (TTM) of the stock, the industry, and the sector from ratio analysis section of the original stock recommendation report (from CIF website, reports tab) 6

7 Re- evaluation Analysis Copy/paste the requested valuation multiples from Financials tab Ratio Analysis Company Industry Sector P/E P/S P/B P/CF Briefly discuss the changes - Overall, there has not been much change in any of these numbers from when it was first recommended until now. The only significant change that I noticed is that the P/S of the sector nearly doubled over this time. There just has not been enough time for any significant changes to come to the company s multiples as it was recommended a little over a week ago and there have been no major developments in the sector, industry or company. Historical Surprises Original Analysis 7

8 Copy/paste Historical Surprises Table from the original stock recommendation report (from CIF website, reports tab) Re- evaluation Analysis Copy/Paste the Historical Surprises Table from Analysts tab (include both revenue and earnings; make note that revenues might be in millions ) 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 1, , Quarter Ending Sep-12 1, , Quarter Ending Jun-12 1, , Quarter Ending Mar-12 1, , Quarter Ending Dec-11 1, , Earnings (per share) 8

9 Quarter Ending Dec Quarter Ending Sep Quarter Ending Jun Quarter Ending Mar Quarter Ending Dec Briefly discuss the changes - There has been a new entry for the Quarter ending Dec- 12; in it both revenue and earnings have achieved positive surprises. These surprises are good for the company because their actual revenue and earnings are higher than what was expected. Consensus Estimates Original Analysis Copy/paste Consensus Estimates Analysis Table from the original stock recommendation report (from CIF website, reports tab) Re- Evaluation Analysis Copy/paste the Consensus Estimates Analysis Table from Analysts tab (include both revenue and earnings) CONSENSUS ESTIMATES ANALYSIS 9

10 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 Year Ending Dec Year Ending Dec LT Growth Rate (%) Briefly discuss the changes - The LT Growth Rate (%) is lower than it was previously, but only by a small margin. Earnings is about the same, it was only 0.11 lower than previously. Again there was not much change in this section, because the recommendation was so recent. Estimate Revision Analysis Original Analysis (MM/DD/YYYY) Copy/paste Estimates Revision Summary Table from the original stock recommendation report (from CIF website, reports tab) 10

11 Re- Evaluation Analysis Copy/paste the Estimates Revisions Summary Table from Analysts tab (include both revenue and earnings) 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

12 Year Ending Dec Briefly discuss the changes - Some analysts have downgraded their estimates since it was recommended. However there were not many changes here either, so there is not much to be drawn from this data except that some analysts might be less optimistic about the future. Analysts Recommendations Original Analysis Copy/paste Analyst Recommendations and Revisions Table from the original stock recommendation report (from CIF website, reports tab) Re- Evaluation Analysis Copy/paste the Analyst Recommendations and Revisions Table from Analysts tab (include both revenue and earnings) ANALYST RECOMMENDATIONS AND REVISIONS 1-5 Linear Scale Current 1 Month Ago 2 Month Ago 3 Month Ago (1) BUY (2) OUTPERFORM (3) HOLD

13 (4) UNDERPERFORM (5) SELL No Opinion Mean Rating Briefly discuss the changes The only change that I could notice was that there was one less hold recommendation. None of the other categories saw much of a change. There is really no conclusion that can be made from this; the analysts seem to have the same sentiments that they had before. Company #2: Well Point (WLP) Date Recommended: 10/30/2012 Date Re- evaluated: 02/19/2013 Company Update Briefly update what happened to the company the last two weeks (up through your re- evaluation date). This should include noteworthy headline news on the stock (e.g., earnings announcement, management s comments on company outlook and/or strategic changes, changes in analyst recommendations or estimate revisions, new product launch, management turnover, legal or regulatory issues, merger/acquisition announcement, restructure announcement, news from major competitors, etc.) - On February 12, 2013, Wellpoint (WLP) named Joseph Swedish as their new CEO. Up to this point, the company had been without a permanent CEO for a couple of weeks. This change will take effect on March 25, There were no other significant news developments for the company during this period. Relative Performance Review relative performance of each sector holding, over the two- week review period, both relative to the SP500 and to the respective SPDR sector ETF. Relate your comments on relative performance to the updates discussed above 13

14 - Both the sector and the S&P 500 outperformed the stock by about 4%. The company also experience negative growth, receiving a cap gain of %. The company is still not to far from its target price, so there is not too much cause for concern. Price Charts Insert a price chart of the stock for the most recent three months. You should include on the same chart (1) the SPDR sector ETF, (2) and the SP500 prices for the same period Insert a price chart of the stock for the most recent one year. You should include on the same chart (1) the SPDR sector ETF, (2) and the SP500 prices for the same period 14

15 Valuations Analysis Original Analysis Copy/paste P/E (TTM), P/S (TTM), P/B (MRQ), P/CF (TTM) of the stock, the industry, and the sector from ratio analysis section of the original stock recommendation report (from CIF website, reports tab) Re- evaluation Analysis Copy/paste the requested valuation multiples from Financials tab Ratio Analysis Company Industry Sector P/E P/S P/B P/CF Briefly discuss the changes - Only the industry and sector saw much change over this period, as the company s multiples remained pretty much the same. The industry and sector witnessed large increases in their multiples which has a lot to do with the growth that the industry and sector have had over the past three months. The sector increased by over 20% over the past three months, so most of the stocks are likely overvalued when compared to what they where earlier. Historical Surprises Original Analysis Copy/paste Historical Surprises Table from the original stock recommendation report (from CIF website, reports tab) 15

16 Re- evaluation Analysis Copy/Paste the Historical Surprises Table from Analysts tab (include both revenue and earnings; make note that revenues might be in millions ) 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

17 Quarter Ending Jun Quarter Ending Mar Quarter Ending Dec Briefly discuss the changes - The two most recent quarters had a negative surprise for sales, but a very large positive surprise for earnings. Consensus Estimates Original Analysis Copy/paste Consensus Estimates Analysis Table from the original stock recommendation report (from CIF website, reports tab) Re- Evaluation Analysis Copy/paste the Consensus Estimates Analysis Table from Analysts tab (include both revenue and earnings) 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 17

18 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 Year Ending Dec Year Ending Dec LT Growth Rate (%) Briefly discuss the changes Estimate Revision Analysis Original Analysis (MM/DD/YYYY) Copy/paste Estimates Revision Summary Table from the original stock recommendation report (from CIF website, reports tab) 18

19 Re- Evaluation Analysis Copy/paste the Estimates Revisions Summary Table from Analysts tab (include both revenue and earnings) 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

20 Briefly discuss the changes - The past four weeks, the company has seen a lot of downgrades for both revenue and earnings estimates. The analysts are more bearish about the stock than they were when the stock was first recommended. Revenue estimates have seen one upward revision in the past week, which might signal that the company is beginning to change analysts opinions with its recent developments. Analysts Recommendations Original Analysis Copy/paste Analyst Recommendations and Revisions Table from the original stock recommendation report (from CIF website, reports tab) Re- Evaluation Analysis Copy/paste the Analyst Recommendations and Revisions Table from Analysts tab (include both revenue and earnings) 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

21 No Opinion Mean Rating Briefly discuss the changes - The stock has less bullish sentiments towards it than it did previously. The number of analysts recommending a buy has decreased from 9 to 6, while the number recommending hold has increased from 9 to 13. Company #3: Gilead Sciences (GILD) Date Recommended: 02/11/2013 Date Re- evaluated: 02/19/2013 Company Update Briefly update what happened to the company the last two weeks (up through your re- evaluation date). This should include noteworthy headline news on the stock (e.g., earnings announcement, management s comments on company outlook and/or strategic changes, changes in analyst recommendations or estimate revisions, new product launch, management turnover, legal or regulatory issues, merger/acquisition announcement, restructure announcement, news from major competitors, etc.) - Gilead Sciences (GILD), beat 4 th Quarter estimates for sales and profit. The report was released on February 1, 2013; which attributed to the stock s growth over my review period. There were no other big news stories about the company during this time period. Relative Performance Review relative performance of each sector holding, over the two- week review period, both relative to the SP500 and to the respective SPDR sector ETF. Relate your comments on relative performance to the updates discussed above. - The company outperformed both the sector and the S&P 500 during the review period by around 3% for both indices. The company had an increase in their stock price by 4.39%. The company s growth looks to continue into the near future. Price Charts 21

22 Insert a price chart of the stock for the most recent three months. You should include on the same chart (1) the SPDR sector ETF, (2) and the SP500 prices for the same period Insert a price chart of the stock for the most recent one year. You should include on the same chart (1) the SPDR sector ETF, (2) and the SP500 prices for the same period Valuations Analysis Original Analysis 22

23 Copy/paste P/E (TTM), P/S (TTM), P/B (MRQ), P/CF (TTM) of the stock, the industry, and the sector from ratio analysis section of the original stock recommendation report (from CIF website, reports tab) Re- evaluation Analysis Copy/paste the requested valuation multiples from Financials tab Ratio Analysis Company Industry Sector P/E P/S P/B P/CF Briefly discuss the changes - The industry is the only thing that saw much change in its multiples, with P/S drastically increasing, while P/B and P/CF decreased. The company remained almost exactly the same and the sector just saw a small increase in P/S. Historical Surprises Original Analysis Copy/paste Historical Surprises Table from the original stock recommendation report (from CIF website, reports tab) 23

24 Re- evaluation Analysis Copy/Paste the Historical Surprises Table from Analysts tab (include both revenue and earnings; make note that revenues might be in millions ) 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, ,

25 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 Briefly discuss the changes - There is no change in this section, the stock was recommended too recently for any more Quarters to be reported. Consensus Estimates Original Analysis Copy/paste Consensus Estimates Analysis Table from the original stock recommendation report (from CIF website, reports tab) 25

26 Re- Evaluation Analysis Copy/paste the Consensus Estimates Analysis Table from Analysts tab (include both revenue and earnings) 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) 26

27 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 (%) Briefly discuss the changes - The changes here are so slight that they do not change the sentiment that analysts have for the stock. The recommendation was too recent to notice any changes. Estimate Revision Analysis Original Analysis (MM/DD/YYYY) Copy/paste Estimates Revision Summary Table from the original stock recommendation report (from CIF website, reports tab) 27

28 Re- Evaluation Analysis Copy/paste the Estimates Revisions Summary Table from Analysts tab (include both revenue and earnings) 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

29 Year Ending Dec Earnings Quarter Ending Mar Quarter Ending Jun Year Ending Dec Year Ending Dec Briefly discuss the changes - The only change in this section is that one analyst upgraded their estimates for both revenue and earnings. The time frame just changed, which is why the numbers are not the same. Again, not enough time has passed to realize any changes, because no major news has come out about the company. Analysts Recommendations Original Analysis Copy/paste Analyst Recommendations and Revisions Table from the original stock recommendation report (from CIF website, reports tab) 29

30 Re- Evaluation Analysis Copy/paste the Analyst Recommendations and Revisions Table from Analysts tab (include both revenue and earnings) 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

31 Mean Rating Briefly discuss the changes - The only change is that there is one less Buy recommendation and there is one more Hold recommendation. One analyst changing their opinion does not suggest that the stock will drop in price, but it is something that we might want to pay attention to incase more start downgrading there recommendations. Section (C) Sector Recommendations You will make recommendations on whether CIF should continue to own its sector holdings Provide your views on the sector. Are you bullish, bearish or neutral on the sector, and why? Discuss whether you recommend CIF to (1) stay put with its current sector holdings, or (2) sell out of the sector, and why? (1) I recommend to the CIF that we stay put with our current sector holdings. Despite the fact that we are slightly underweight in this sector, I believe that the sector will continue to grow for the foreseeable future. There is not much uncertainty in the sector and despite a couple of big recalls and lawsuits; I believe the sector is poised to grow. (2) I do not suggest that we sell out of this sector. Since this sector is such a defensive sector, we will be protected from severe losses if the economy takes a turn for the worse. Also, since the sector appears poised to continue its growth, I believe that selling out of the sector is a bad idea. 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 Provide your recommendations in the following table Company Name Ticker Date Recommended Date Re- evaluated Recommendation (Explain Why) 31

32 Company Name Symbol Date Recommended Date Re- evaluated Wellpoint (WLP) 10/30/2012 2/19/2013 Do not sell Gilead Sciences INC (GILD) 02/11/2012 2/19/2013 Do not sell Sell Adjust Target Price Do not adjust Do not adjust Adjust Stop- loss Price Do not adjust Do not adjust Laboratory Corporation of America Holdings (LH) 02/06/2013 2/19/2013 Do not sell Do not adjust Do not adjust - For both Gilead Sciences Inc (GILD) and Laboratory Corporation of America Holdings, I recommend that we do not do anything with our current holding. The stocks were recommended so recently that the original recommendations are all still very applicable. There have been no major recent news stories concerning either of these companies, so I believe that we should stick with the original recommendation. - For Wellpoint (WLP), I also recommend that we also do not do anything with the stock. The stock is not all that close to either its target price or its stop loss price so I feel as though both should remain at what they currently are. Also, the stock has not experienced much change over the last month so there is no real need to sell the stock at this point. 32

33 References: settlements- idusl1n0be1ro ?type=companynews recall- idusl1n0axiy ?type=companynews acquisition- idusl4n0bb23c ?type=companynews bookings- top- 1- billion.html stjude- recall- idusbre91b1jh ?type=companynews jj- hips- idusbre91e ?type=companynews verdict- idusl1n0bdlmo ?type=companynews idusl1n0b0kgo ?type=companynews