Insights into the Healthcare Sector: Overview, Industries, Companies, and Performance
"Explore the diverse landscape of the healthcare sector, including pharmaceutical companies, medical equipment manufacturers, health insurance providers, and more. Learn about key industry players, sector performance, and the largest healthcare companies in 2022. Discover the sector's weight in the S&P 500 index and gain valuable insights into industry trends and business analysis."
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Presentation Transcript
Healthcare Sector Megan Sullivan Jack Whitney Ginny Wright July 6, 2022
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.
Overview Sector Index Weight 27.1% 14.4% 11.2% 10.9% 8.8% 7.8% 6.5% 4.8% 3.0% 2.8% 2.8% Information Technology Health Care Financials Consume Discretionary Communication Services Industrials Consumer Staples Energy Utilities Materials Real Estate
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
Overview World s Largest Healthcare Companies in 2022: UnitedHealth Group 1. Johnson & Johnson 2. CVS Health Corporation 3. Pfizer Inc. 4. AbbVie, Inc. 5. Novartis AG 6. Roche Holding AG 7. Cigna Corporation 8. Merck & Co., Inc. 9. 10. Anthem, Inc. 11. Sanofi
Overview Forbes Ranking 22 39 42 43 67 68 72 84 87 88 99 Company Revenue Profit Market Cap UnitedHealth J&J CVS Pfizer AbbVie Novartis Roche Cigna Merck Anthem Sanofi $297.6 B $94.9 B $292 B $81.5 B $56.2 B $51.6 B $68.7 B $174.3 B $50.4 B $144.3 B $44.6 B $17.5 B $19.8 B $7.9 B $22 B $11.5 B $24.1 B $15.2 B $5.4 B $13 B $6.2 B $7.4 B $490.2 B $477.4 B $133.5 B $271.8 B $273.8 B $200.7 B $308.1 B $81.2 B $213.8 B $121.3 B $136.9 B
Overview Sector Performance: Source: S&P Global
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
Business Analysis Demand Analysis: Life Cycle Things that came up when I Googled healthcare life cycle phases
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.
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.
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.
Business Analysis Healthcare Sector by Industry: Source: Fidelity
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
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)
Financial Analysis Overall sector experienced growth in 2021 COVID-19 impact Concentrated in larger companies Consistently a top-performing growth sector
Financial Analysis Gross margin averages about 60% Minimal changes in margin in past years Free cash flow varies, depending on industry High capital intensity
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
Valuation Analysis Growth gap is closing Possible economic recession
Recommendation Continue to stay overweight in the SIM Healthcare is defensive Wait for economy to stabilize
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.
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
