CIF Sector Update Report (Spring 2014)

Transcription

1 CIF Sector Update Report (Spring 2014) Sector Health Care Analyst: Anthony Ledesma Presentation Date: April 11, 2014 Review Period: Start Date: _March 20, 2014 End Date:_April 7, 2014 Section (A) Sector Performance Review (A-1) Sector Performance Relative to SP500 1

2 How did the sector perform relative to the broad market (SP500) during the review period? What might have caused the out-/under-performance of the sector in relation to the broad market? You should weigh in macro, sector/industry, and company-specific factors that might have contributed to the out-/under-performance The Health Care sector generally underperformed the market over the last month. One of the possible contributors to this underperformance would be the uncertainty surrounding the biotech bubble. There is speculation that a biotech bubble may be bursting and over the past month, the biotech industry has declined 7.09%. Many of the industries within the Health Care sector have generally moved in-line with the market with the exception of biotech and pharmaceuticals (Goldstein). What are some of the noteworthy news/events from the sector during the review period? The news/events can be company specific, or for the industry/sector One of the largest events that happened within the review period was the Affordable Care Act deadline. March 31 was the deadline for uninsured Americans to enroll in a health insurance plan. The government set a goal of 7 million Americans to enroll and this goal was surpassed to 7.1 million by the deadline. This new enrollment is thought to be beneficial to health insurance companies as there will now be more demand for their services (Walker). Gilead Sciences introduced a new Hepatitis C drug, pricing it at $1000 a day over a 3 month period. This was portrayed negatively by the public as many people believe this shows structural problems within the health care system if it allows companies to charge these prices (Peterson). The United States government reported that 3 million Americans had enrolled under Medicaid. Through the expansion of Medicaid under the Affordable Care Act, they forecasted that 8 million people will be enrolled under Medicaid by the end of the year (Morgan). 2

3 (A-2) Big Sector Movers Largest Gainers (1 Month) Intuitive Surgical Quest Diagnostics 3

4 Largest Losers (1 Month) Alexion Pharmaceuticals Vertex Pharmaceuticals What might have contributed to big price moves in the period examined (recent 1 month) of each of the named gainers/losers? On April 1 st, the FDA approved of Intuitive Surgical s new da Vinci surgical system resulting in a 19% increase in stock price over the following two days (Intuitive). The last earnings reports for Quest Diagnostics beat analysts estimates for both revenue and earnings. In particular, earnings beat estimates by over 10% and the stock price has steadily increased since then 4

5 Alexion Pharmaceuticals declined over the past 3 months with a growing concern of drug prices. Alexion s main drug, Soliris, is a very expensive drug which people believe to be overpriced (Divine). Vertex Pharmaceuticals has steadily declined over the past 3 months due to the growing concern of biotech companies. Identify two largest sector gainers and losers of during recent 3 month. Copy/paste a 3 month price chart of the two largest gainers and losers here. Largest Gainers (3 Month) Forest Laboratories (FRX) % Intuitive Surgical (ISRG) % 5

6 Largest Losers (3 Month) Tenet Healthcare (THC) % Celgene Corp (CELG) % 6

7 What might have contributed to big price moves in the period examined (recent 3 month) for each of the named gainers/losers? On February 18, Actavis acquired Forest Laboratories. This acquisition was purchased at a premium, resulting in an increase in stock price. As stated earlier, Intuitive Surgical s new da Vinci surgical system was approved by the FDA, resulting in an increase in stock price. On February 24, Tenet Healthcare reported fourth quarter results much lower than many predicted, resulting in a decline in stock price. Celgene is involved in a lawsuit with Boston Children s Hospital. Boston Children s Hospital claims that there are owed royalties by Celgene for helping uncover cancer-fighting properties in two of Celgene s drugs. This has contributed to the recently declining stock price (Walker). (A-3) Two Largest Stocks in the Sector Identify two stocks with the largest weight in the sector ETF. Copy/paste a 1 month price chart to include the two stocks, sector ETF and SP500 here. Johnson & Johnson (JNJ) Pfizer (PFE) 7

8 Highlight noteworthy news, announcements, or events relevant to the two stocks. Johnson & Johnson recently announced a quarterly dividend starting on March 11. They have also recently announced an acceptance of a binding offer from The Carlyle Group to acquire Ortho-Clinical diagnostics (Johnson and Johnson). Pfizer recently unveiled a new breast cancer drug proven to slow or halt tumor growth. Researchers are very optimistic about this new drug and will soon seek FDA approval (Herper). (A-4) Short-term (up to Three Months) Outlook of the Sector What is your short-term (up to three months) outlook of the sector? Provide arguments in support of your view. The Health Care sector has recently underperformed the market. I believe much of this is due to the uncertainty regarding biotech stocks as well as the Affordable Care Act and I think this uncertainty will continue for the next few months. With new enrollment in health insurance under the Affordable Care Act, there will be an increase in demand. The increase in revenue from the new enrollees may be offset by the costs associated with the adjustments to new government regulations, especially in smaller insurance companies. The increase in demand may prove to be beneficial to medical devices and equipment companies as there will be an ever increasing need to innovate and come up with new products. It is difficult to predict exactly how the Affordable Care Act will affect the sector but it is clear investors are still somewhat cautious. In the short term, I do not believe the health care sector will see a tremendous amount of growth, but overall I do believe it is in good position to make progress. 8

9 Section (B) Sector Holding Updates Company #1: Bristol-Myers Squibb (BMY) Date Recommended: 2/28/2014 Date Re-evaluated: 4/11/2014 (B-1) Company Updates and Stock Performance Company Update BMY submitted new drug applications to get new Hepatitis C drugs approved by the FDA. Biotech and pharmaceutical companies have recently been declining, bringing down the health care sector. There hasn t been any significantly bad news regarding BMY so I believe the recent decline in stock price was reflective of the whole industry. Relative Performance BMY has underperformed both the health care sector and the S&P over my review period. This is prevalent for many companies within the biotech industry. There has been no negative news over this review period to explain the underperformance. 1-Year Price Chart Copy/paste 1-year price chart of Stock #1 here. Include in the chart sector ETF as compare and SP500 as index. Comment on performance of Stock #1 relative to the sector ETF and SP500. BMY has generally outperformed the sector and S&P over the last year. Recently they have been declining and have been underperforming the sector in the last couple weeks. 9

10 (B-2) Valuations, Estimates and Recommendations Original Analysis Copy/paste P/E (TTM), P/S (TTM), P/B (MRQ), P/CF (TTM) of Stock #1, the industry, and the sector from the original stock report, ratio analysis section (from CIF website, reports tab, or Angel) Ratio Analysis Company Industry Sector P/E (TTM) P/S (TTM) P/B (MRQ) P/CF (TTM) Re-evaluation Analysis Copy/paste the requested valuation multiples from Financials tab Ratio Analysis Company Industry Sector P/E (TTM) P/S (TTM) P/B (MRQ) P/CF (TTM) Comment on the changes The stock price has declined over the review period. Likewise, all four of the ratios used in the analysis slightly declined as well. 10

11 Historical Surprises Original Analysis Copy/paste Historical Surprises Table from the original stock report (from CIF website, reports tab, or Angel) 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 ) Estimates vs Actual Estimate Actual Difference Surprise % SALES (in millions) Quarter Ending Dec-13 4, , Quarter Ending Sep-13 3, , Quarter Ending Jun-13 4, , Quarter Ending Mar-13 3, , Quarter Ending Dec-12 4, , Earnings (per share) 11

12 Quarter Ending Dec Quarter Ending Sep Quarter Ending Jun Quarter Ending Mar Quarter Ending Dec Comment on the changes There have been no changes in regards to historical surprises. Consensus Estimates Original Analysis Copy/paste Consensus Estimates Analysis Table from the original stock report (from CIF website, reports tab, or Angel) 12

13 Re-Evaluation Analysis Copy/paste the Consensus Estimates Analysis Table from Analysts tab (include both revenue and earnings) # of Estimates Mean High Low 1 Year Ago SALES (in millions) Quarter Ending Jun , , , , Quarter Ending Sep , , , , Year Ending Dec , , , , Year Ending Dec , , , , Earnings (per share) Quarter Ending Jun Quarter Ending Sep Year Ending Dec Year Ending Dec LT Growth Rate (%) Comment on the changes There has been very little change in consensus estimates. Estimates of revenues decreased slightly while earnings have generally stayed the same. 13

14 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, or Angel) 14

15 Re-Evaluation Analysis Copy/paste the Estimates Revisions Summary Table from Analysts tab (include both revenue and earnings) Last Week Last 4 Weeks Number Of Revisions: Up Down Up Down Revenue Quarter Ending Jun Quarter Ending Sep Year Ending Dec Year Ending Dec Earnings Quarter Ending Jun Quarter Ending Sep Year Ending Dec Year Ending Dec Comment on the changes In the original analysis, there had been many downgrades but in the past four weeks there has on only been one revision, being an upgrade. 15

16 Analysts Recommendations Original Analysis Copy/paste Analyst Recommendations and Revisions Table from the original stock recommendation report (from CIF website, reports tab, or Angel) Re-Evaluation Analysis Copy/paste the Analyst Recommendations and Revisions Table from Analysts tab 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

17 Mean Rating Comment on the changes There have been no changes in analysts recommendations. (B-3) Technical Indicators ( Moving Average and Relative Strength Index from *** Note: see Sector Update Report Guidelines for instructions *** Copy/paste 10- & 50-day moving average (MA) technical analysis chart with relative strength index (RSI) as the bottom panel 17

18 Copy/paste 50- & 200-day moving average (MA) technical analysis chart with relative strength index (RSI) as the bottom panel How have the two sets of technical charts changed from the ones in the original report? Are findings from technical analysis supportive of your other findings? The 50 & 200 day moving average chart has generally stayed the same but the 10 & 50 day moving average chart has since created a death cross. This is consistent with other findings as BMY s stock price has recently been declining. Stock #2-?: Thermo Fisher Scientific (TMO) Repeat the above for Stock #2, and the rest of the individual stocks CIF holds from the sector. Company Update TMO had only been held for one week during this review period so there weren t any significant news events or reportings during this time. Relative Performance Although TMO has not been held for the entirety of this review period, they have slightly underperformed the market and sector, but has generally followed the market trend. 18

19 1-Year Price Chart TMO has outperformed both the sector and the S&P over the past year. (B-2) Valuations, Estimates and Recommendations Original Analysis Copy/paste P/E (TTM), P/S (TTM), P/B (MRQ), P/CF (TTM) of Stock #1, the industry, and the sector from the original stock report, ratio analysis section (from CIF website, reports tab, or Angel) Ratio Analysis Company Industry Sector P/E (TTM) P/S (TTM) P/B (MRQ) P/CF (TTM) Re-evaluation Analysis Copy/paste the requested valuation multiples from Financials tab Ratio Analysis Company Industry Sector P/E (TTM) P/S (TTM) P/B (MRQ) P/CF (TTM)

20 Comment on the changes The changes in the ratios are relatively small and insignificant. All ratios have very slightly declined. Historical Surprises Original Analysis Copy/paste Historical Surprises Table from the original stock report (from CIF website, reports tab, or Angel) 20

21 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 ) Estimates vs Actual Estimate Actual Difference Surprise % SALES (in millions) Quarter Ending Dec-13 3, , Quarter Ending Sep-13 3, , Quarter Ending Jun-13 3, , Quarter Ending Mar-13 3, , Quarter Ending Dec-12 3, , Earnings (per share) Quarter Ending Dec Quarter Ending Sep Quarter Ending Jun Quarter Ending Mar Quarter Ending Dec Comment on the changes There have been no changes in regards to historical surprises. 21

22 Consensus Estimates Original Analysis Copy/paste Consensus Estimates Analysis Table from the original stock report (from CIF website, reports tab, or Angel) Re-Evaluation Analysis Copy/paste the Consensus Estimates Analysis Table from Analysts tab (include both revenue and earnings) # of Estimates Mean High Low 1 Year Ago SALES (in millions) Quarter Ending Jun , , , , Quarter Ending Sep , , , , Year Ending Dec , , , , Year Ending Dec , , , , Earnings (per share) Quarter Ending Jun Quarter Ending Sep Year Ending Dec

23 Year Ending Dec LT Growth Rate (%) Comment on the changes There has been relatively little change in consensus estimates. Estimates have slightly increased but there have also been slightly fewer analysts. 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, or Angel) 23

24 Re-Evaluation Analysis Copy/paste the Estimates Revisions Summary Table from Analysts tab (include both revenue and earnings) Last Week Last 4 Weeks Number Of Revisions: Up Down Up Down Revenue Quarter Ending Jun Quarter Ending Sep Year Ending Dec Year Ending Dec Earnings Quarter Ending Jun Quarter Ending Sep Year Ending Dec Year Ending Dec Comment on the changes There have been slightly more revisions since the original analysis. Most have been up revisions with the exception of a few down revisions. All down revisions have occurred within the last week. 24

25 Analysts Recommendations Original Analysis Copy/paste Analyst Recommendations and Revisions Table from the original stock recommendation report (from CIF website, reports tab, or Angel) Re-Evaluation Analysis Copy/paste the Analyst Recommendations and Revisions Table from Analysts tab 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 Comment on the changes There have been no changes in regards to analysts recommendations (B-3) Technical Indicators ( Moving Average and Relative Strength Index from *** Note: see Sector Update Report Guidelines for instructions *** Copy/paste 10- & 50-day moving average (MA) technical analysis chart with relative strength index (RSI) as the bottom panel 26

27 Copy/paste 50- & 200-day moving average (MA) technical analysis chart with relative strength index (RSI) as the bottom panel How have the two sets of technical charts changed from the ones in the original report? Are findings from technical analysis supportive of your other findings? There has been little change between the two sets of charts. The 50 & 200 day moving average charts look identical. As for the 10 & 50 moving average charts, the 10 day moving average has recently dipped just below the 50 moving average. 27

28 Section (C) Sector Holding Recommendations Recommendation Date Date Reevaluated Stop- Adjust Ticker Adjust Company Name Recommended Symbol Target Sell loss Price Price Bristol-Myers Squibb BMY 2/28/2014 4/11/2014 $48.00 Thermo Fisher Scientific TMO 3/28/2014 4/11/2014 HOLD Although BMY has been declining over the past few weeks, they have been increasing over the past couple days. If the stock did indeed hit a new market support, it is possible the stock could continue to increase. If this is the case, the stop loss price would need to be adjusted closer to that trough. If the stock were to drop back below that trough, it is likely that trend would continue, which is why I am recommending a stop loss price just below the most recent trough. TMO has only been held for a short amount of time, making it difficult to recognize any necessary changes. 28

29 References Divine, John. "Why Netflix, Alexion Pharmaceuticals, and Facebook Are Today's 3 Worst Stocks." The Motley Fool. N.p., n.d. Web. 9 Apr < Goldstein, Amy, and Eilperin, Juliet. "More than 7 million have enrolled under Affordable Care Act, White House says."washington Post. The Washington Post, 2 Apr Web. 7 Apr < care-act-on-track-to-reach-7-million/2014/04/01/1f6b8b96-b99b-11e3-9a05- c739f29ccb08_story.html>. "Healthcare Sector Snapshot - NYTimes.com." Healthcare Sector Snapshot - NYTimes.com. N.p., n.d. Web. 10 Apr < Herper, Matthew. "Pfizer Breast Cancer Drug Results "As Impressive As I've Ever Seen," Researcher Says." Forbes. Forbes Magazine, 6 Apr Web. 9 Apr < "Intuitive shares rise 6% on FDA clearance of da Vinci system."marketwatch. N.p., n.d. Web. 9 Apr < "Johnson & Johnson (JNJ.N) Key Developments Reuters.com." Reuters. Thomson Reuters, n.d. Web. 9 Apr < Morgan, David. "U.S. reports 3 million Medicaid enrollments under Obamacare."Reuters. Thomson Reuters, 4 Apr Web. 9 Apr < Peterson, Kim. "$1,000-a-day miracle drug shocks U.S. health care system."cbsnews. CBS Interactive, n.d. Web. 9 Apr < Walker, Joseph. "Hospital, Celgene Fight Over Royalties for Cancer Drugs." The Wall Street Journal. Dow Jones & Company, n.d. Web. 9 Apr < 29