Healthcare Sector Stock Presentation

1
Healthcare SectorStock Presentation

• Winter 2006
• Xin Lu
• Hai-ran Xu

2
Agenda

• Sector and Current Holding
• Recommendations
• Business Analysis
• Financial Analysis
• Valuation Analysis
• Conclusions
• QA

3
Sector and Current Holding

• Defensive Sector
• Demographics-driven Prospect
• Heavily Regulated
• High Entry Barrier, Little Substitute
• Vulnerable to Legal Cost
• Generic Drug Impact

4
Current Holding

• Current Holding
• BSX 2.32
• JNJ 3.41
• MRK 5.64
• UNH 1.11
• PFE 3.72
• SIM percentage 16.20
• SP percentage 13.58

• We voted to maintain current weight

5
Recommendations

• Pfizer (PFE) BUY by 110 basis point
• United Health Group (UNH) SELL by 110 basis point

6
Pfizer-Business Analysis

• Largest Drug Manufacturer
• Strong RD and Marketing
• Wide Product Lines
• Won Patent Cases
• Blockbuster Lipitor hurt by Zocor
• Generous Dividend and Stock Buy-back
• Spun off its Consumer Product Division to boost
  growth

7
Pfizer-Financial Analysis

• Sales growth slowed down

8
Pfizer-Financial Analysis

• Volatile Before-tax Margin

9
Pfizer-Financial Analysis

• ROE

10
Pfizer-Valuation

• Current Price 26.37
• Cost 30.57
• Shares 745,157

11
Pfizer-Valuation
It is Cheap!!!
12
Pfizer-Valuation

• DCF Assumptions
• Sales growth at 3 to perpetuity
• EBIT at 28
• Tax rate at 30
• Discount rate 9 (4.580.56)
• Current Financial Structure
• No MA or Spin-off

13
Pfizer-Recommendation

• Target Price 31.64

14
United Health Group-Business Analysis

• Health care plan industry
• Three business units
• UnitedHealthcare
• mid-size local employers and consumers
• AmeriChoice
• State medical programs
• Ovations
• Health service to American over the age of 50

15
United Health Group-Business Analysis

• UNH business will go to mature
• In 2005 10-K report
• UnitedHealthcare increase 24 (15 from MA)
• AmeriChoice 9 (all from MA)
• Ovations 24 (4 from MA)
• Growth expectation of UnitedHealthcare and
  AmeriChoice would be lower in 2006

16
United Health Group-Financial Analysis
17
United Health Group-Financial Analysis
18
United Health Group-Valuation Analysis
19
United Health Group-Valuation Analysis
20
United Health Group-recommendations

• Sell at Current Price 58.89
• 52 weeks high 64.61

By the way, CEO of UNH sold stocks in February
21
Conclusion
/-
Target
Current
1.11
4.83
3.72
PFE

• Cheap Stock
• Demographics Drive Long-term Performance
• Restructuring Boost Margin
• Aggressive Buy-back and Generous Dividend

1.11
-1.11
-
UNH

• Relatively Expensive Stock
• Mature Business with Low Growth
• Management Sells Stock

22
Thank You!

• Q A
• It is time to wake up