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

Transcription

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

2 Agenda Sector/SIM Overview Recommendation Summary Stock Analysis of Recommendations Vote 2

3 Sector Overview 3

4 Healthcare Sector Slightly overweight King v Burwell resolved (favorable for managed care companies) Strong fundamentals, good momentum, continued upside 4

5 SIM Weight (16.16%) vs. S&P Weight (15.42%) Currently healthcare +0.74% Overweight keep the same SIM Weighting 3.13% S&P 500 Weight 2.27% 2.82% 2.88% 2.25% 3.00% SIM Weight Health Care 15.42% 16.16% Consumer Discre>onary Consumer Staples 19.63% 12.80% 20.79% 12.61% Energy Financials 10.09% 16.63% 7.78% 9.43% 9.41% 17.76% 8.39% 7.37% Industrials Informa>on Technology Materials Telecommunica>on Services 5

6 Asset Weight in SIM Aetna 4.3% Gilead Sciences 4.26% McKesson Corp 3.52% Teva 4.08% 6

7 Summary Current Price Target Price Upside / Downside Action AET % BUY GILD % BUY MCK % BUY TEVA % SELL 7

8 Summary Current Weight Target Weight BPS AET 4.3% 4.8% +50 BPS GILD 4.26% 4.76% +50 BPS MCK 3.52% 4.6% +108 BPS TEVA 4.08% 2.00% -208 BPS 8

9 Company Overview Founded 1853 Diversified health care benefits company Serves 46 Million people Among the largest U.S. insurance providers 9

10 Stock Performance Sales: $58.00B Return YTD: 44.05% Dividend Yield: 0.75% Market Cap: $44.51B 52-week Range: /22/2010 7/22/2011 7/22/2012 7/22/2013 7/22/

11 Drivers/Opportunities Merger with Humana (1 st to consolidate) $37B Deal; Medicare Advantage/National Presence Economies of Scale Synergies from 2013 acquisition of Coventry Health Health Technology Investments Consumer-centric retail model Market Share, Pricing Power, Revenue Public Health Exchanges, Dual Eligibles Accountable Care Solutions Value-based payment models, ACOs 11

12 Risks The Affordable Care Act (ACA) fees, costs, and regulations Synergies/Economies of Scale not realized Merger with Humana falls through Anti-trust, associated fees Overpay, no synergy, higher claims costs 12

13 Key Ratios - Historical AET TTM P/E P/S P/B P/CF ROE

14 Key Ratios - Competitors TTM AET UNH HUM ANTM CI Industry P/E P/S P/B P/CF ROE

15 DCF 15

16 Sensitivity Analysis 10.00% 10.25% 10.50% 10.75% 11.00% 3.00% % % % %

17 Recommendation Buy! Current Price Target Price Upside Action BPS AET % BUY 50 BPS 17

18 Company Overview Founded 1987 Researched-Based Biopharmaceuticals Focus: Life-threatening disease Liver Disease and Infectious Disease HIV/AIDS, Hepatitis, Cardiovascular, Respiratory Disrupt compounds to form a more comprehensive therapy Single-tablet regimens 18

19 Stock Performance Sales: $24.89B Return YTD: 24.67% Dividend Yield: 0.37% Market Cap: $172.06B 52-week Range: /22/2010 7/22/2011 7/22/2012 7/22/2013 7/22/

20 Key Products HIV Franchise Viread, Truvada, Complera, Stribild Hepatitis C Franchise Sovaldi, Harvoni ($12.4 B 2014 Sales) Influenza Tamiflu Oncology Zydelig treats certain leukemias & lymphomas 20

21 Pipeline Phase 1 Phase 2 Phase 3 Submitted Total HIV/AIDS Liver Disease Hematology/ Oncology Cardiovascular Inflammation/ Respiratory

22 Key Ratios - Historical GILD TTM P/E P/S P/B P/CF ROE

23 Key Ratios - Competitors TTM GILD BIIB AMGN CELG Industry P/E P/S P/B P/CF ROE

24 HIV Franchise Maintain HIV dominance; single-tablet regimens convenience/affordability Hepatitis C Franchise Patent through 2029; High efficacy/low resistance help to maintain market share in long run Rest of the world sales? Japan sign-on for Hep C (Sovaldi & Harvoni) adds to EPS growth $14.5B cash Potential Acquisitions? Pipeline Potential Oncology, etc. Strategy/Expertise Drivers/Opportunities 24

25 Risks ~61% of total revenue from HCV (hepatitis C) Revenue growth may peak soon Expiring Patents (beginning 2018) Pricing Pressures (Payors) Lower pricing but more volume Pipeline Success Maintaining superior efficacy/safety status 25

26 DCF 26

27 Sensitivity Analysis 10.00% 10.25% 10.50% 10.75% 11.00% 4.00% % % % %

28 Recommendation Buy! Current Price Target Price Upside Action BPS GILD % BUY 50 BPS 28

29 Company Overview Founded 1833 One of the largest and oldest pharmaceutical distributer Largest non-weapon contractor of U.S. government Two segments: Distribution Solution (98% sales) Technology Solution (2% sales) 29

30 Stock Performance Sales: $179.05B Return YTD: 8.53% Dividend Yield: 0.43% Market Cap: $52.06B 52-week Range: /22/2010 7/22/2011 7/22/2012 7/22/2013 7/22/

31 Key Ratios - Historical TTM P/E P/S P/B P/CF ROE

32 Key Ratios - Competitors MCK CAH ABC P/E N/A P/S P/B P/CF ROE

33 Drivers/Opportunities Good industry prospect Leading position in industry Acquisition of the largest European drug distributer Strong revenue growth Double digit growth in recent years 33

34 Risks High multiples Low margins Gross margin 6.37% Operating margin 1.66% 34

35 DCF McKesson Corp. (MCK) Analyst: Lu Yu Terminal Discount Rate = 9.50% 7/21/2015 Terminal FCF Growth = 4.0% Year 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E Revenue 12,146 13,152 14,506 15,957 17,553 19,308 21,239 23,363 25,699 28,269 31,096 % Growth 8.3% 10.3% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% Operating Income 3,511 4,085 4,941 4,787 5,266 5,792 6,372 7,009 7,710 8,481 9,329 Operating Margin 28.9% 31.1% 34.1% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% Taxes 1,053 1,226 1,482 1,436 1,580 1,738 1,911 2,103 2,313 2,544 2,799 Tax Rate 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% Net Income 2,458 2,860 3,458 3,351 3,686 4,055 4,460 4,906 5,397 5,936 6,530 % Growth 16.4% 20.9% -3.1% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% Add Depreciation/Amort 1,032 1,118 1,233 1,277 1,316 1,352 1,381 1,402 1,413 1,413 1,244 % of Sales 8.5% 8.5% 8.5% 8.0% 7.5% 7.0% 6.5% 6.0% 5.5% 5.0% 4.0% Plus/(minus) Changes WC (3,826) (503) (677) (638) (702) (772) (850) (935) (1,028) (1,131) (1,244) % of Sales -31.5% -3.8% -4.7% -4.0% -4.0% -4.0% -4.0% -4.0% -4.0% -4.0% -4.0% Subtract Cap Ex ,028 1,131 1,244 Capex % of sales 4.8% 4.5% 4.3% 4.1% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% Free Cash Flow (913) 2,883 3,398 3,335 3,598 3,862 4,142 4,439 4,754 5,088 5,286 % Growth % 17.9% -1.9% 7.9% 7.3% 7.3% 7.2% 7.1% 7.0% 3.9% NPV of Cash Flows 24,398 38% NPV of terminal value 40,335 62% Terminal Value 99,959 Projected Equity Value 64, % Free Cash Flow Yield -1.67% Free Cash Yield 5.29% Current P/E Terminal P/E 15.3 Projected P/E Current EV/EBITDA Terminal EV/EBITDA 9.5 Projected EV/EBITDA Shares Outstanding 235 Current Price $ Implied equity value/share $ Upside/(Downside) to DCF 18.5% 35

36 Sensitivity Analysis 9.25% 9.50% 9.75% 3.50% % % % %

37 Recommendation Buy! Current Price Target Price Upside Action BPS MCK % BUY 108 BPS 37

38 Company Overview Founded 1901 Largest generic drugs manufacturer in the world Two segments: Generic drugs (48% sales) Specialty drugs (42% sales) Active M&A Teva Perrigo Mylon 38

39 Stock Performance Sales: $20.27B Return YTD: 3.95% Dividend Yield: 2.14% Market Cap: $50.11B 52-week Range: /22/2010 7/22/2011 7/22/2012 7/22/2013 7/22/

40 Key Ratios - Historical TTM P/E P/S P/B P/CF ROE

41 Key Ratios - Competitors TEVA MYL PRGO AGN P/E N/A P/S P/B P/CF ROE

42 Drivers/Opportunities Cash Cow: Copaxone Prevalent drug for multiple sclerosis 21% of total revenue Shift to patent drugs Gross margin (87.1%) almost doubled than generics (43.3%) Merger success New blockbuster drug 42

43 Risks Merger failure Resistance from Mylan, antitrust concerns Copaxone patent expire September 2015, extension unlikely FX exposure Substantial European presence 43

44 DCF Teva Pharmaceutical (TEVA) Analyst: Lu Yu Terminal Discount Rate = 10.00% 7/21/2015 Terminal FCF Growth = 3.0% Year 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E Revenue 19,461 19,072 19,263 19,455 19,747 20,043 20,444 20,853 21,374 21,909 22,566 % Growth -2.0% 1.0% 1.0% 1.5% 1.5% 2.0% 2.0% 2.5% 2.5% 3.0% Operating Income 3,814 4,024 4,064 4,086 4,147 4,410 4,498 4,796 4,916 5,258 5,416 Operating Margin 19.6% 21.1% 21.1% 21.0% 21.0% 22.0% 22.0% 23.0% 23.0% 24.0% 24.0% Interest Income Interest % of Sales 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% Taxes Tax Rate 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% Net Income 3,251 3,439 3,473 3,490 3,543 3,780 3,856 4,125 4,228 4,535 4,671 % Growth 5.8% 1.0% 0.5% 1.5% 6.7% 2.0% 7.0% 2.5% 7.3% 3.0% Add Depreciation/Amort 1,362 1,240 1,156 1, % of Sales 7.0% 6.5% 6.0% 5.5% 5.0% 4.5% 4.0% 3.5% 3.0% 3.0% 3.0% Plus/(minus) Changes WC (160) (162) (164) (167) (170) (173) (178) (182) (188) % of Sales 1.0% 0.2% -0.8% -0.8% -0.8% -0.8% -0.8% -0.8% -0.8% -0.8% -0.8% Subtract Cap Ex Capex % of sales 4.0% 3.5% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% Free Cash Flow 4,020 4,044 3,891 3,815 3,773 3,914 3,890 4,056 4,050 4,353 4,483 % Growth 0.6% -3.8% -2.0% -1.1% 3.7% -0.6% 4.3% -0.1% 7.5% 3.0% NPV of Cash Flows 24,507 49% NPV of terminal value 25,435 51% Terminal Value 65,971 Projected Equity Value 49, % Free Cash Flow Yield 7.40% Free Cash Yield 6.80% Current P/E Terminal P/E 14.1 Projected P/E Current EV/EBITDA Terminal EV/EBITDA 10.8 Projected EV/EBITDA Shares Outstanding 858 Current Price $ Implied equity value/share $ Upside/(Downside) to DCF -8.1% 44

45 Sensitivity Analysis 9.75% 10.00% 10.25% 2.50% % % % %

46 Recommendation Sell! Current Price Target Price Upside Action BPS TEVA % SELL 208 BPS 46

47 Summary Current Price Target Price Upside / Downside Action BPS AET % BUY 50 BPS GILD % BUY 50 BPS MCK % BUY 108 BPS TEVA % SELL 208 BPS 47

48 Questions? 48

49 Thank You! 49