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Healthcare Sector Analysis

Healthcare Sector Analysis. Alexander Bishop Justin Gibbs Bethaditya Winarno Jie Zhang. Agenda. Healthcare Sector Overview Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recommendations Q&A. Healthcare overview.

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Healthcare Sector Analysis

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  1. Healthcare Sector Analysis Alexander Bishop Justin Gibbs Bethaditya Winarno Jie Zhang

  2. Agenda • Healthcare Sector Overview • Business Analysis • Economic Analysis • Financial Analysis • Valuation Analysis • Recommendations • Q&A

  3. Healthcare overview

  4. A category of stocks relating to medical and healthcare goods or services, the sector market capitalization is at $1.96 Trillion

  5. Healthcare Industries

  6. Sector Leading Companies

  7. SIM Holdings

  8. Sector Performance YTD: -1.65% QTD: -1.65%

  9. Business Analysis

  10. Phase of Life Cycle

  11. Key Driver: Demographic Aging of US population, 16% of US population will be 65+ older by 2020.

  12. Porter Five Forces Analysis • Rivalry: Highly concentrated in large companies, competition between largest companies • Supplier Power: Low • Substitutes: Generic drugs • Buyer Power: Low, buyers are individual consumers • Barriers to enter: long & costly FDA approval (10 years on average), high R&D cost, R&D process is very difficult and tedious

  13. Patent Expiration • Patents grant exclusive rights for 20 years • Generic drug is a low cost substitute • Increasing use of generic drugs

  14. Substantial loss in market share

  15. Economic Analysis

  16. Positive trends • Aging population and the baby boomers • People living longer with chronic disease • Obesity and diabetes epidemics • Technological advances • Global reach of disease • Personalized medicine 

  17. US Projected Population from 2010-2050

  18. US Obesity Trend No Data <10% 10%–14% 15%–19% 20%–24% 25%–29% ≥30%

  19. Trends in National Health Expenditure

  20. Healthcare Reform • Could be beneficial to the industry because more people will be insured and able to seek out medical attention. • With more people insured, the number of medical procedures performed should increase. • The sector has been oversold out

  21. Financial Analysis

  22. EBITDA MARGIN

  23. NET PROFIT MARGIN

  24. RETURN ON EQUITY

  25. REVENUE GROWTH

  26. EARNINGS PER SHARE

  27. CASH FLOW/ SHARE

  28. Valuation Analysis

  29. Current Valuations • Below the median in every category • Valuations will revert to the mean after restored market confidence • Not due to a change in industry fundamentals • Future drivers of Revenue look promising • Demographics • Penetration in emerging markets • Healthcare expenditures up

  30. Relative to S&P 500

  31. Recommendations

  32. Recommendations • Add 38 basis points to increase current weight to • 150 basis points overweight • Reasons: • Constant revenue growth, outperforming S&P500 • Short-term modest economic growth • Healthcare reform • Patent expiration

  33. Questions?

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