Healthcare Sector Analysis. Prepared by Ariel Imas Robert Candella Nanda Win Student Managed Investment Portfolio Class Prof. P.V. Viswanath Spring 2002. Objective. To research, evaluate, and present potential equity-investment opportunities in the U.S. healthcare sector.
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Ariel ImasRobert CandellaNanda Win
Student Managed Investment Portfolio ClassProf. P.V. ViswanathSpring 2002
1) Industry analysis
2) Quantitative analysis
3) Corporate analysis
724 stocks in population
246 stocks - Total assets > 200M
41 stocks – Leverage regression
18 stocks - Price/Free cash flow
2) Profitability & Effectiveness
Top 5 stocks (in order of ranking):
Final 4 stocks (in order of rank):
Two-stage Free cash flow to equity discount model
To value the equity in a form with two stages of growth—an initial period of higher growth and subsequent period of stable growth
1) Free cash flow to equity
2) Weighted average growth rates for high-growth period
3) Discount factor
4) Stable growth period
Model Value vs. Market Value
Gentiva Health Services Inc.
Subjective variables considerations
Subjective variables justifications
With formidable growth for years to come, Polymedica Corp offers direct-to-customer relief medical products and equipment to patients with diabetic, respiratory, urology, urinary tract, and menopause problems. Their core business consists of diabetic and respiratory products, both of which have shown significant growth. Currently, only consuming 8% of the diabetic market, Polymedica has great potential to gain market share and achieve even more growth. Favored by today’s demographics, Polymedica Corp relies on government programs to receive most of their profits.
With over 6 long established product lines consisting of products for clinical health care markets in interventional cardiology, critical care and cardiovascular and vascular surgery, this company is here to stay for years to come. 2 new products shall propel growth rates even higher. Their brand new launch of top-of-the-line next generation intra-aortic balloon sets a new standard with the Fidelity 8 Fr. This product will propel their Cardiac Assist unit to levels of great proportions. In the pipeline, upgraded VasoSeal (R) arterial puncture sealing devices shall reap positive rewards for theirCollagen Products / Vascular Graft Segment. Having undergone a big restructuring with in the company, DSCP looks to benefit over 10 Million annually.
Gentiva Health Services:
With a positive earnings surprise of 6 cents or 33% in the fourth quarter, and a positive earnings surprise for the past four quarters, GTIV is doing something right. Currently, this company provides specialty pharmaceutical services through 40 pharmacies across U.S.A., along with specialty home health care services. With their sale of the Specialty Pharmaceutical assets to Accredo, GTIV is focusing on their Home Health Care Services. Currently, GTIV holds the number one spot in Home Care with a 2-3% market share. Their 275 locations enable delivery of wide range of services though their nursing and care centers. GTIV is actively pursuing relationships with managed care organizations. Cigna Health Care represents the largest managed care organization in which they have direct business with; in 2001 Cigna represented 19% of revenues for GTIV. Recently, both Cigna and GTIV renewed their contracts for the seventh consecutive time.
Mentor Corporation develops, manufactures, and markets a broad range of products for the medical specialties of plastic, reconstructive, general surgery, and urology. The Company's products include a line of implants, incontinence products, catheters, impotence products, and cancer diagnosis and treatment products. Mentor markets its products in the United States and in more than 60 companies. Mentor continues to post consistent revenue growth earning it the distinction of being one of Forbes 200 Best Small Companies. Recently divesting its ophthalmology business, Mentor focus now is on its core businesses--urology and cosmetic surgery markets. The urology segment of its core business addresses a large underserved population with devices for the management and treatment of urologic disorders common in the aging population. The cosmetic surgery segment, one of fastest growing fields in medical practice today, experiences annual growth rate of 10-12 percent. This well managed company will most definitely translate these market opportunities into significant earnings growth.
Gentiva Health Services:
With two bran new products Datacope will greatly increase their revenue stream.
Management is doing the right thing in curbing costs during recessionary times.
Just like Polymedica Corp, Datascope will accrue greater sales as the baby boom population ages.