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HEALTHCARE

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Turns, EBIT, Interest burden, Tax burden, and Leverage all stable with a small ... Tax burden. Margin. SP 500. Health care. Forecasts - Overall. Growth very attractive ... – PowerPoint PPT presentation

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Title: HEALTHCARE


1
  • HEALTHCARE
  • Tom Dent
  • Nidhi Dhar
  • Prem Patel
  • Vishal Saboo
  • Jon Wissman
  • Shane Yan

2

Recommendation
  • Overweight
  • Currently 5.74 above
  • Recommend same

3
Sector Overview
  • Market cap - 1,506 billion, 14.41 of the SP
    500
  • Current SIM Portfolio 20.15
  • Four industries
  • Health Care Equipment Supplies
  • Health Care Providers Services
  • Biotechnology
  • Pharmaceuticals
  • Largest Companies Medtronic, Cardinal Health,
    Amgen, Pfizer.

4
Business Analysis
  • Industry differences
  • Pharmaceutical and Biotechnology
  • Growth
  • Services and Equipment/Supply
  • Maturing
  • Overall sector
  • Growth/defensive

5
Business Analysis
  • Demographics
  • Government Influence
  • Long Product Development Cycle

6
Demographics
  • Fastest growing segment of population - Baby
    Boomers
  • Over - 50 age group will exceed 95 million by
    2010 versus 75 million now
  • Increasing need for healthcare
  • Higher life spans

7
Government Influence
  • Regulation
  • Patents - High initial barrier to entry
  • Government policy directs research funding

8
Product Development Life Cycle
  • Long Time Period (time to bring product to
    market)
  • Expensive - 200 billion in last decade
  • High rate of research failure

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12
Revenues, Earnings, Margins
  • Revenue and EPS trends stable-positive growth
  • Net Profit margin and ROE stable increase over
    past four years
  • More noise in Pre-tax margin
  • Net Profit margin, Pre-tax margin, and ROE all
    compare favorably with SP 500

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14
Cash Flow
  • Positive cash flows
  • Net increase is WC
  • Cash flow sufficient to fund investments
  • Cash flow sector vs SP 500

15
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17
FS predictors of stock performance Bernstein
research results
18
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19
Dupont/ Financial analysis
  • Turns, EBIT, Interest burden, Tax burden, and
    Leverage all stable with a small overall
    improvement in product (ROE)
  • Trend in ratios (1998 2001)

20
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21
Forecasts - Overall
  • Growth very attractive
  • Near term 1 to 2 over SP 500 growth
  • Longer term growth 15 - 16
  • Financial analysis conclusion
  • slightly mixed possible concerns economic
    cycle, investment/expansion, and pipeline
    concerns for growth (pharmaceuticals)
  • overall positive for sector

22
Healthcare Services Industry
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25
Sector Valuation Analysis
  • P/E, P/S, P/B, and P/CF all higher than SP 500
  • Defensive growth sector
  • People have to take medicine when they become
    ill.
  • Better performing sector historically

26
Sector Valuation Analysis
  • Why relatively higher valuations?
  • Aging population (baby boomers)
  • Increasing living standards in the U.S.
  • Increasing usage of healthcare systems
  • Global expansion
  • Huge RD investment
  • Innovative products

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31
Industry Valuation Analysis
  • Biotechnology High Growth
  • P/E ranges from 19.9 to 92.0
  • Pharmaceuticals Growth
  • Big names such as Pfizer, Merck, Eli Lilly
  • Healthcare Equipment Supplier Growth
  • Healthcare Providers Services Value
  • P/E ranges from 15.3 to 34.2

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33
Technical Analysis
  • Upward trend
  • Resistance level at 56
  • Support level at 45
  • Recent Price 46.3 as of 04/26/2002

34
Sector Valuation Summary
  • Higher valuation than SP 500
  • Current valuation level lower than historical
    average
  • Be greedy when people are fearful
  • Investors concerned with thin pipelines of those
    large pharmaceuticals
  • Buying opportunity
  • Overweight in the sector for the long term

35
Summary
  • Positives
  • Financial strength
  • Non-substitutable
  • Barriers to entry (scale issues)
  • Growth potential
  • Population trends
  • Economic uncertainty (defense)
  • Valuations
  • Negatives
  • Historical out performance (reversion to mean)
  • Economic recovery not a positive for
    growth/defensive
  • Pipeline concerns
  • Investment spending
  • Price pressures

36
Recommendation
  • Maintain current OVERWEIGHT
  • 5
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