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Healthcare Sector Stock Presentation

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

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  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 • Q&A

  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% S&P 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 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

  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% (4.58%+0.5*6%) • Current Financial Structure • No M&A 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 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

  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 UNH 1.11% -1.11% - • Relatively Expensive Stock • Mature Business with Low Growth • Management Sells Stock

  22. Thank You! Q & A It is time to wake up

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