Healthcare Sector Megan Sullivan Jack Whitney
Description: Healthcare Sector Megan Sullivan Jack Whitney Ginny Wright July 6, 2022 Overview Overview The Healthcare sector includes pharmaceutical companies, medical equipment manufacturers, health insurance companies, and businesses that provide
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slide1. Healthcare Sector Megan Sullivan
Jack Whitney
Ginny Wright
July 6, 2022<br>
slide2. Overview<br>
slide3. Overview The Healthcare sector includes pharmaceutical companies, medical equipment manufacturers, health insurance companies, and businesses that provide and/or help coordinate medical services.
The Healthcare sector currently comprises over 14% of the S&P 500.
It is the second largest index sector, only behind Information Technology.<br>
slide4. Overview<br>
slide5. Overview Industries within the Healthcare Sector:
Pharmaceuticals & Biotechnology
Medical Equipment: includes manufacturers of medical supplies, surgical instruments, MRI machines, and surgical robots.
Managed Healthcare: companies that provide health insurance policies.
Healthcare Facilities: includes clinics, hospitals, labs, nursing homes, and other specialized residential treatment centers.
Medical Distribution<br>
slide6. Overview World’s Largest Healthcare Companies in 2022:
UnitedHealth Group
Johnson & Johnson
CVS Health Corporation
Pfizer Inc.
AbbVie, Inc.
Novartis AG
Roche Holding AG
Cigna Corporation
Merck & Co., Inc.
Anthem, Inc.
Sanofi<br>
slide7. Overview<br>
slide8. Overview Sector Performance: Source: S&P Global<br>
slide9. Business Analysis<br>
slide10. Business Analysis Demand Analysis: Life Cycle
Every industry has a life cycle, which is comprised of four phases:
Early Phase
Innovation Phase
Maturity Phase
Decline Phase<br>
slide11. Business Analysis Demand Analysis: Life Cycle
Things that came up when I Googled “healthcare life cycle phases”<br>
slide12. Business Analysis Demand Analysis: Life Cycle
The healthcare industry tends to oscillate between the Growth and Maturity Phases.
The Growth Phase is recognizable by increasing sales until production levels increase, competition enters the market, and gross margins begin to decline.
The Maturity Phase marks the upper limits of a product’s demand.
Things like the COVID pandemic and evolving medical innovation allow some companies in the healthcare sector to exist in more than one phase.<br>
slide13. Business Analysis Demand Analysis: Business Cycle
Most of the healthcare sector is defensive and is stable across the business cycle.
Healthcare employment does respond somewhat to demand-induced recessions.<br>
slide14. Business Analysis Supply and Demand Analysis: Economic Factors
Supply chain issues domestically and abroad have impacted the healthcare sector.
Recent COVID lockdowns in China have had a negative effect on companies within the healthcare sector.<br>
slide15. Business Analysis Healthcare Sector by Industry: Source: Fidelity<br>
slide16. Economic Analysis<br>
slide17. Economic Analysis Healthcare continues to become a larger share of the economy and government budgets
Not heavily affected by the business cycle
Demand is price-inelastic<br>
slide18. Economic Analysis Fluctuation often due to government intervention
Companies and government agencies have clashing interests
Factors affecting this sector:
Aging population, obesity and other epidemics, technological advances, development in disease treatment (positively correlated)
Uninsured people, cost controls, other government regulation (negatively correlated)
Clinical-trial data (can be positive or negative, depending on outcome)<br>
slide19. Financial Analysis<br>
slide20. Financial Analysis Overall sector experienced growth in 2021
COVID-19 impact
Concentrated in larger companies
Consistently a top-performing growth sector<br>
slide21. Financial Analysis Gross margin averages about 60%
Minimal changes in margin in past years
Free cash flow varies, depending on industry
High capital intensity<br>
slide22. Valuation Analysis<br>
slide23. Valuation Analysis Valuation can widely differ across the sector
Key ratios are relatively close to the overall market
Valuations should remain close to the same<br>
slide24. Valuation Analysis Growth gap is closing
Possible economic recession<br>
slide25. Recommendation<br>
slide26. Recommendation Continue to stay overweight in the SIM
Healthcare is defensive
Wait for economy to stabilize<br>
slide27. Recommendation Positives
Highly Defensive
Wide catalog of industries
Risks
Lower profit
Picking correct industries
Industry Recommendation: Have a higher weight in consumer insurance and pharmaceuticals due to possible recession. Keep a lower weight on Biotech.<br>
slide28. References Investopedia. October 31, 2021. https://www.investopedia.com/terms/h/health_care_sector.asp
Jennings, Katie. “Forbes Global2000: The World’s Largest Healthcare Companies in 2022”. May 12, 2022. https://www.forbes.com/sites/katiejennings/2022/05/12/forbes-global-2000-the-worlds-largest-healthcare-companies-in-2022/?sh=30a441a3f78f
S&P Dow Jones Indices. May 31, 2022. S&P Global. https://www.spglobal.com/spdji/en/indices/equity/sp-500/#data<br>
Jack Whitney
Ginny Wright
July 6, 2022<br>
slide2. Overview<br>
slide3. Overview The Healthcare sector includes pharmaceutical companies, medical equipment manufacturers, health insurance companies, and businesses that provide and/or help coordinate medical services.
The Healthcare sector currently comprises over 14% of the S&P 500.
It is the second largest index sector, only behind Information Technology.<br>
slide4. Overview<br>
slide5. Overview Industries within the Healthcare Sector:
Pharmaceuticals & Biotechnology
Medical Equipment: includes manufacturers of medical supplies, surgical instruments, MRI machines, and surgical robots.
Managed Healthcare: companies that provide health insurance policies.
Healthcare Facilities: includes clinics, hospitals, labs, nursing homes, and other specialized residential treatment centers.
Medical Distribution<br>
slide6. Overview World’s Largest Healthcare Companies in 2022:
UnitedHealth Group
Johnson & Johnson
CVS Health Corporation
Pfizer Inc.
AbbVie, Inc.
Novartis AG
Roche Holding AG
Cigna Corporation
Merck & Co., Inc.
Anthem, Inc.
Sanofi<br>
slide7. Overview<br>
slide8. Overview Sector Performance: Source: S&P Global<br>
slide9. Business Analysis<br>
slide10. Business Analysis Demand Analysis: Life Cycle
Every industry has a life cycle, which is comprised of four phases:
Early Phase
Innovation Phase
Maturity Phase
Decline Phase<br>
slide11. Business Analysis Demand Analysis: Life Cycle
Things that came up when I Googled “healthcare life cycle phases”<br>
slide12. Business Analysis Demand Analysis: Life Cycle
The healthcare industry tends to oscillate between the Growth and Maturity Phases.
The Growth Phase is recognizable by increasing sales until production levels increase, competition enters the market, and gross margins begin to decline.
The Maturity Phase marks the upper limits of a product’s demand.
Things like the COVID pandemic and evolving medical innovation allow some companies in the healthcare sector to exist in more than one phase.<br>
slide13. Business Analysis Demand Analysis: Business Cycle
Most of the healthcare sector is defensive and is stable across the business cycle.
Healthcare employment does respond somewhat to demand-induced recessions.<br>
slide14. Business Analysis Supply and Demand Analysis: Economic Factors
Supply chain issues domestically and abroad have impacted the healthcare sector.
Recent COVID lockdowns in China have had a negative effect on companies within the healthcare sector.<br>
slide15. Business Analysis Healthcare Sector by Industry: Source: Fidelity<br>
slide16. Economic Analysis<br>
slide17. Economic Analysis Healthcare continues to become a larger share of the economy and government budgets
Not heavily affected by the business cycle
Demand is price-inelastic<br>
slide18. Economic Analysis Fluctuation often due to government intervention
Companies and government agencies have clashing interests
Factors affecting this sector:
Aging population, obesity and other epidemics, technological advances, development in disease treatment (positively correlated)
Uninsured people, cost controls, other government regulation (negatively correlated)
Clinical-trial data (can be positive or negative, depending on outcome)<br>
slide19. Financial Analysis<br>
slide20. Financial Analysis Overall sector experienced growth in 2021
COVID-19 impact
Concentrated in larger companies
Consistently a top-performing growth sector<br>
slide21. Financial Analysis Gross margin averages about 60%
Minimal changes in margin in past years
Free cash flow varies, depending on industry
High capital intensity<br>
slide22. Valuation Analysis<br>
slide23. Valuation Analysis Valuation can widely differ across the sector
Key ratios are relatively close to the overall market
Valuations should remain close to the same<br>
slide24. Valuation Analysis Growth gap is closing
Possible economic recession<br>
slide25. Recommendation<br>
slide26. Recommendation Continue to stay overweight in the SIM
Healthcare is defensive
Wait for economy to stabilize<br>
slide27. Recommendation Positives
Highly Defensive
Wide catalog of industries
Risks
Lower profit
Picking correct industries
Industry Recommendation: Have a higher weight in consumer insurance and pharmaceuticals due to possible recession. Keep a lower weight on Biotech.<br>
slide28. References Investopedia. October 31, 2021. https://www.investopedia.com/terms/h/health_care_sector.asp
Jennings, Katie. “Forbes Global2000: The World’s Largest Healthcare Companies in 2022”. May 12, 2022. https://www.forbes.com/sites/katiejennings/2022/05/12/forbes-global-2000-the-worlds-largest-healthcare-companies-in-2022/?sh=30a441a3f78f
S&P Dow Jones Indices. May 31, 2022. S&P Global. https://www.spglobal.com/spdji/en/indices/equity/sp-500/#data<br>