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Healthcare Sector Stock Presentation. Winter 2006 Xin Lu Hai-ran Xu. Agenda. Sector and Current Holding Recommendations Business Analysis Financial Analysis Valuation Analysis Conclusions Q&A. Sector and Current Holding. Defensive Sector Demographics-driven Prospect

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Healthcare sector stock presentation

Healthcare SectorStock Presentation

Winter 2006

Xin Lu

Hai-ran Xu


Agenda
Agenda

  • Sector and Current Holding

  • Recommendations

  • Business Analysis

  • Financial Analysis

  • Valuation Analysis

  • Conclusions

  • Q&A


Sector and current holding
Sector and Current Holding

  • Defensive Sector

  • Demographics-driven Prospect

  • Heavily Regulated

  • High Entry Barrier, Little Substitute

  • Vulnerable to Legal Cost

  • Generic Drug Impact


Current holding
Current Holding

  • Current Holding:

    • BSX = 2.32%

    • JNJ = 3.41%

    • MRK = 5.64%

    • UNH = 1.11%

    • PFE = 3.72%

      SIM percentage = 16.20%

      S&P percentage = 13.58%

  • We voted to maintain current weight


Recommendations
Recommendations

  • Pfizer (PFE): BUY by 110 basis point

  • United Health Group (UNH): SELL by 110 basis point


Pfizer business analysis
Pfizer-Business Analysis

  • Largest Drug Manufacturer

  • Strong R&D 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


Pfizer financial analysis
Pfizer-Financial Analysis

  • Sales growth slowed down


Pfizer financial analysis1
Pfizer-Financial Analysis

  • Volatile Before-tax Margin



Pfizer valuation
Pfizer-Valuation

  • Current Price: $26.37

  • Cost: $30.57

  • Shares: 745,157


Pfizer valuation1
Pfizer-Valuation

It is Cheap!!!


Pfizer valuation2
Pfizer-Valuation

  • DCF Assumptions:

    • Sales growth at 3% to perpetuity

    • EBIT at 28%

    • Tax rate at 30%

    • Discount rate 9% (4.58%+0.5*6%)

    • Current Financial Structure

    • No M&A or Spin-off


Pfizer recommendation
Pfizer-Recommendation

  • Target Price $31.64


United health group business analysis
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


United health group business analysis1
United Health Group-Business Analysis

  • UNH business will go to mature

  • In 2005 10-K report

    • UnitedHealthcare increase 24% (15% from M&A)

    • AmeriChoice 9% (all from M&A)

    • Ovations 24% (4% from M&A)

  • Growth expectation of UnitedHealthcare and AmeriChoice would be lower in 2006






United health group recommendations
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


Conclusion
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

UNH

1.11%

-1.11%

-

  • Relatively Expensive Stock

  • Mature Business with Low Growth

  • Management Sells Stock


Thank you
Thank You!

Q & A

It is time to wake up


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