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Health Care Stock Update 6-30-15

What is the key to investing success? In general, it is 'dividend growth investing' -- but the key to finding dividend growing investments changes in each sector. For BDCs, it is well covered dividends and growing NAVs. For banks, it is superior ROE banks with superior EPS growth. For REITs, it is good FAD coverage of the dividend along with FAD growth - but good luck finding FAD numbers.

In most sectors, superior dividend growth leads to superior share price appreciation. In the updates posted earlier today, I provided evidence that EPS projection upgrades led to superior share price appreciation in packaging and transportation stocks this year.

I have had the good fortune of doing very well with health care stocks. There is probably a good reason for that success. I tell investors in income stocks to 'always invest with dividend CAGR projection awareness'. That is a formula that has worked very well with MLPs. And in 2015, that has been the winning formula in health care as well. Given my ability to produce pretty good CAGRs, I hope that is a trend that continues. Let's look at some correlation stats and then the spreadsheets.

The Importance of Analyst Consensus Ratings The following companies had ratings under 2.2 - or the better rated companies - at the beginning of the year: A, ABBV, ABC, BAYRY, CAH, GILD, MCK, MDT, NVO, PRGO, RHHBY, SNY, SYK, TMO, ZBH and ZTS. Their mean price gain for the year is 6.41%. Their mean total return for the year is 7.42% - and 7 of the 16 beat the sector median yearly price gain.
The following companies had ratings of 2.2 or more at the beginning of the year: ABT, AMGN, AZN, BAX, BCR, BDX, BMY, DGX, GSK, JNJ, LLY, MRK, NVS, PFE, STJ and TEVA. Their mean price gain for the year is 3.58%. Their mean total return for the year is 4.96% - and 7 of the 16 beat the sector median yearly price gain.

The Importance of Consensus CAGR Projections The following companies had CAGR projections over 8.0 - or the better rated companies - at the beginning of the Q1-15: A , ABBV , ABC , ABT , AMGN , BAYRY , BCR , BMY , CAH , DGX , GILD , MCK , NVO , NVS , PRGO , STJ , SYK , TMO , ZBH and ZTS. Their mean price gain for the year is 7.31%. Their mean total return for the year is 8.11% - and 11 of the 20 beat the sector median yearly price gain.
The following companies had consensus CAGR projections at or under 8.0 at the beginning of Q1-15: AZN , BAX , BDX , GSK , JNJ , LLY , MDT , MRK , PFE , RHHBY , SNY and TEVA. Their mean price gain for the year is 1.13%. Their mean total return for the year is 2.98% - and 3 of the 12 beat the sector median yearly price gain.

The Importance of Factoids' CAGR Projections The following companies had Factoids' CAGR projections over 8.0 - or the better rated companies - at the beginning of the year: ABC, ABT, AMGN, BCR, BDX, BMY, CAH, DGX, GILD, MCK, NVO, PRGO, STJ and TMO. Their mean price gain for the year is 10.03%. Their mean total return for the year is 10.75% - and 14 of the 14 beat the sector median yearly price gain.
The following companies had Factoids' CAGR projections at or under 8.0 - or the lesser rated companies - at the beginning of the year: A, ABBV, AZN, BAX, BAYRY, GSK, JNJ, LLY, MDT, MRK, NVS , PFE, RHHBY, SNY, SYK, TEVA and ZBH. Their mean price gain for the year is 0.43%. Their mean total return for the year is 2.06% - and 4 of the 17 beat the sector median yearly price gain.

The Importance of the dividend/EPS ratio My CAGR projections are strongly based on projected dividend coverage. The following had projected dividend/EPS ratios of less than 31% based on the 2015 EPS projection at the beginning of the year: A , ABC , BCR , DGX , GILD , MCK , MDT , PRGO , STJ , SYK , TEVA , TMO and ZBH. Their mean price gain for the year is 6.47%. Their mean total return for the year is 7.06% - and 6 of the 13 beat the sector median yearly price gain.
The following had projected dividend/EPS ratios of more than 31% but less than 50% based on the 2015 EPS projection at the beginning of the year: ABBV , ABT , AMGN , BAX , BAYRY , BDX , CAH , JNJ , NVO , NVS and SNY. Their mean price gain for the year is 3.73%. Their mean total return for the year is 5.18% - and 4 of the 11 beat the sector median yearly price gain.
The following had projected dividend/EPS ratio of more than 50 percent based on the 2015 EPS projection at the beginning of the year: AZN , BMY , GSK , LLY , MRK , PFE and RHHBY. Their mean price gain for the year is 3.22%. Their mean total return for the year is 5.25% - and 3 of the 7 beat the sector median yearly price gain.

The Importance of Intra-Year EPS Projections - excluding non-domestic companies The following companies had 2015 EPS projections that increased over 3% since the beginning of the year: ABC , BDX , DGX , GILD , MCK , MDT and PRGO. Their mean price gain for the year is 10.41%. Their mean total return for the year is 11.01% - and 5 of the 7 beat the sector median yearly price gain. Their mean RRR is 10.07%.
The following companies had 2015 EPS projections that increased less than 3% but did not decrease since the beginning of the year: AMGN and CAH. Their mean price gain for the year is 0%. Their mean total return for the year is 0.92% - and 0 of the 2 beat the sector median yearly price gain. Their mean RRR is 9.4%.
The following companies had 2015 EPS projections that decreased - but decreased less than 5% since the beginning of the year: , A , ABBV , ABT , AZN , BCR , BMY , JNJ , LLY , MRK , SYK , TMO and ZBH. Their mean price gain for the year is 1.95%. Their mean total return for the year is 2.96% - and 3 of the 14 beat the sector median yearly price gain. Their mean RRR is 9.4%.
The following companies had 2015 EPS projections that fell over 5% since the beginning of the year: BAX, PFE and STJ. Their mean price gain for the year is 5.14%. Their mean total return for the year is 6.51% - and 2 of the 3 beat the sector median yearly price gain. Their mean RRR is 9.17%. I could be two years away from having enough EPS accuracy data to produce meaningful RRRs.

The Importance of Changes in Target Prices The following companies had target price increased over 10% since the beginning of the year: ABC, ABT, BCR, BMY, CAH, DGX, LLY, MCK, NVO, NVS, PFE and PRGO. Their mean price gain for the year is 11.41%. Their mean total return for the year is 12.34% - and 10 of the 12 beat the sector median yearly price gain. Their mean RRR is 9.65%.
The following companies had target price increased less than 10% or more than 2% since the beginning of the year: A, ABBV, AMGN, BDX, MDT, MRK, STJ, SYK, TEVA, TMO and ZBH. Their mean price gain for the year is 1.23%. Their mean total return for the year is 2.11% - and 1 of the 11 beat the sector median yearly price gain. Their mean RRR is 9.64%.
The following companies had target price increased under 2% since the beginning of the year: AZN, BAX, BAYRY, GILD, GSK, JNJ, RHHBY and SNY. Their mean price gain for the year is 0.57%. Their mean total return for the year is 1.95% - and 3 of the 19 beat the sector median yearly price gain. Their mean RRR is 9.46%.

Price targets are strongly based on CAGRs. So one would expect that when CAGRs correlate with superior returns, then price target changes would also correlate with superior returns.

This could be another sector where investors are lost - and need to follow analyst guidance. So stocks with superior analyst target revisions would have superior share price appreciation.

I am sporadically cynical - so I would ask the rhetorical question of "in what sectors are investors NOT lost?" That's a tough question. And now for the spreadsheets:

Health Care / Pharma Stocks 6-30-15

Yield in the spreadsheet below is based on the Q2-15 dividend. Spreadsheet header abbreviations: Div = dividend; EPS = earnings per share; LTM = last twelve months; YTD = year to date. The dividend to EPS ratio is a measure of dividend safety. At this point in time, companies that pay dividends once per year have had their payouts divided by four and encoded in this data as if they paid a quarterly dividend. AZN pays two unidentical dividends per year. I take the sum of those dividends and divide by four to get a run rate dividend per quarter. GILD's first dividend will be in Q2-15. SNY was added when AGN was dropped. My sources did not agree on SNY's historical earnings data. The last four columns measure the percentage change in the 2015 EPS projection; the change in the price target since the beginning of the year; the change in the dividend since Q2-14; and the average yearly change in the dividend since Q2-12. BAX is spinning off its biopharmaceuticals business to form Baxalta (BXLT), while maintaining a 19.5% interest in BXLT. Each BAX share gets one BXLT share. BXLT will begin trading on 7-01-15. That pending transaction may explain the lack of LTM dividend growth.


    Div Current Div/ Div/ Percent Change
Company and ticker Price /Quarter Yield EPS15 EPS16 Price Pr+Div EPS15 Target Div 1yr Div 3yr

Agilent Technologies (NYSE:A) 38.58 0.100 1.04 23.5% 20.3% -5.76 -5.28 -2.30 4.81 5.93 11.99
AbbVie Inc. (NYSE:ABBV) 67.19 0.510 3.04 48.1% 41.0% 2.67 4.23 -1.40 5.40 21.43 na
AmerisourceBergen Corporation (NYSE:ABC) 106.34 0.290 1.09 23.6% 20.9% 17.95 18.59 10.81 32.07 23.40 32.28
Abbott Laboratories (NYSE:ABT) 49.08 0.240 1.96 44.4% 39.8% 9.02 10.08 -4.42 11.54 9.09 7.87
Amgen Inc. (NASDAQ:AMGN) 153.52 0.790 2.06 33.0% 29.9% -3.62 -2.63 2.90 5.93 29.51 29.95
AstraZeneca PLC (NYSE:AZN) 63.71 0.700 4.39 66.5% 68.6% -9.48 -7.49 -0.24 -3.51 0.00 0.00
Baxter International Inc. (NYSE:BAX) 69.93 0.520 2.97 52.7% 51.2% -4.58 -3.17 -16.14 -7.02 0.00 17.46
Bayer AG (OTCPK:BAYRY) 140.99 0.638 1.81 31.9% 34.1% -5.13 -3.42 6.81 0.00 -11.55 21.34
CR Bard Inc. (NYSE:BCR) 170.70 0.220 0.52 9.8% 8.8% 2.45 2.71 -2.28 15.74 4.76 5.01
Becton, Dickinson and Company (NYSE:BDX) 141.65 0.600 1.69 33.9% 28.3% 1.79 2.65 3.96 9.87 10.09 10.06
Bristol-Myers Squibb Company (NYSE:BMY) 66.54 0.370 2.22 84.1% 64.3% 12.72 13.98 -2.22 22.93 2.78 2.86
Cardinal Health, Inc. (NYSE:CAH) 83.65 0.387 1.85 35.4% 31.5% 3.62 4.58 2.58 13.41 12.83 17.76
Quest Diagnostics (NYSE:DGX) 72.52 0.380 2.10 31.9% 29.7% 8.14 9.28 8.68 16.16 15.15 33.87
Gilead Sciences Inc. (NASDAQ:GILD) 117.08 0.430 1.47 16.0% 15.6% 24.21 24.67 8.70 -0.68 0.00 na
GlaxoSmithKline PLC (NYSE:GSK) 41.65 0.695 6.67 116.8% 100.7% -2.55 0.70 -20.13 -3.18 8.59 8.38
Johnson & Johnson (NYSE:JNJ) 97.46 0.750 3.08 48.9% 46.8% -6.80 -5.36 -0.49 0.68 7.14 7.13
Eli Lilly and Company (NYSE:LLY) 83.49 0.500 2.40 63.3% 57.0% 21.02 22.47 -1.56 20.59 2.04 0.68
McKesson Corporation (NYSE:MCK) 224.81 0.240 0.43 7.6% 6.6% 8.30 8.53 16.25 14.17 0.00 6.36
Medtronic Inc. (NYSE:MDT) 74.10 0.305 1.65 27.9% 25.1% 1.93 2.76 8.15 8.31 0.00 5.54
Merck & Co. Inc. (NYSE:MRK) 56.93 0.450 3.16 52.3% 47.2% 0.25 1.83 -2.82 2.42 2.27 2.33
Novo Nordisk A/S (NYSE:NVO) 54.76 0.190 1.39 40.6% 33.2% 29.40 30.29 -4.10 50.51 -8.43 16.49
Novartis AG (NYSE:NVS) 98.34 0.704 2.86 54.5% 51.3% 6.13 7.65 -11.93 10.04 3.56 4.64
Pfizer Inc. (NYSE:PFE) 33.53 0.280 3.34 54.9% 47.7% 7.64 9.44 -8.11 10.13 7.69 8.37
Perrigo Company PLC (NYSE:PRGO) 184.83 0.125 0.27 6.5% 5.6% 10.57 10.72 4.35 13.51 19.05 16.07
Roche Holding AG (OTCQX:RHHBY) 35.07 0.271 3.09 57.1% 51.4% -7.03 -4.15 -11.21 0.00 -1.28 5.37
Sanofi (NASDAQ:SNY) 49.53 0.402 3.25 50.9% 50.2% 8.59 12.12 -2.17 0.00 -15.81 -2.40
St. Jude Medical Inc. (NYSE:STJ) 73.07 0.290 1.59 29.4% 26.8% 12.36 13.26 -5.95 9.66 7.41 8.03
Stryker Corporation (NYSE:SYK) 95.57 0.345 1.44 27.4% 25.0% 1.31 2.05 -3.27 9.29 13.11 17.54
Teva Pharmaceutical Industries (NYSE:TEVA) 59.10 0.340 2.30 26.1% 26.7% 2.76 3.95 1.95 8.87 -2.02 9.68
Thermo Fisher Scientific, Inc (NYSE:TMO) 129.76 0.150 0.46 8.2% 7.4% 3.57 3.81 -4.92 7.01 0.00 5.13
Zimmer Biomet Holdings, Inc. (NYSE:ZBH) 109.23 0.220 0.81 13.8% 13.1% -3.69 -3.31 -0.47 2.97 0.00 7.04
Zoetis Inc. (NYSE:ZTS) 48.22 0.083 0.68 20.0% 17.3% 12.06 12.44 -2.37 10.25 13.79 na

Average       2.10 38.8% 38.8% 4.99 6.19 -1.04 9.43 5.64 10.93

With the 10 Treasury at 2.32% and the sector average yield [on Q2 Divs] at 2.1% - the spread is -22 basis points.
The cap weighted ETF XLV is up 8.79% year to date - with dividends included, its total return is 9.09%.
The yield on the XLV is 1.24% using the sum of LTM dividends - while LTM dividend growth is 8.19%.

Dates used to credit dividends:

A : 4-21-15 ABBV : 5-14-15 ABC : 5-31-15 ABT : 5-14-15 AGN: 03-05-15 AMGN: 06-04-15 AZN: 03-22-15 BAX : 06-30-15
BAYRY: yearly BCR: 05-07-15 BDX: 03-30-15 BMY: 04-30-15 CAH: 07-14-15 DGX: 04-21-15 GSK: 07-08-15 JNJ: 06-09-15
LLY : 06-09-15 MCK: 03-31-15 MDT: 04-16-15 MRK: 04-07-15 NVO: yearly NVS: 04-09-14 PFE: 06-01-15 PRGO: 06-15-15
RHHBY: yearly SNY: yearly STJ: 07-30-15 SYK: 07-30-15 TEVA: 06-03-15 TMO : 04-14-15 ZMH: 07-13-15 ZTS : 07-01-15

Differences between my coverage universe and the XLV My coverage includes BAYRY, GSK, NVO, NVS, RHHBY and SNY - and those non-US companies are not in the XLV. The XLV includes significant weightings in non-dividend paying CELG and BIIB. It has minor weightings in REGN, VRTX, MYL, BSX, ISRG, EW, MNK, LH and WAT. Stats for these are provided below. For this grouping a dividend CAGR is meaningless. I show the last two end of quarter Yahoo projections of five year EPS growth in the two columns on the right.


    12-31-14 6-30 YTD Change   Earnings Per Share P/E Ratios Yahoo CAGR
Company and ticker Price Price Price EPS Target   2013 2014 2015 2016 2014 2015 2016 Q4-14 Q1-15

Biogen Idec Inc. (NASDAQ:BIIB) 342.40 403.94 17.97 2.52 25.80   896 1383 1670 1943 29.21 24.19 20.79 21.20 17.64
Boston Scientific Corporation (NYSE:BSX) 13.17 17.70 34.40 1.12 0.92   46 84 90 102 21.07 19.67 17.35 10.53 9.87
Celgene Corporation (NASDAQ:CELG) 113.35 115.74 2.11 -2.26 16.63   298 371 475 619 31.20 24.37 18.70 25.76 25.46
Edwards Lifesciences (NYSE:EW) 129.90 142.43 9.65 6.20 8.38   313 350 428 469 40.69 33.28 30.37 14.87 14.06
Gilead Sciences Inc.   93.79 117.08 24.83 9.01 -0.68   204 809 1077 1104 14.47 10.87 10.61 23.96 13.22
Intuitive Surgical, Inc. (NASDAQ:ISRG) 531.24 484.50 -8.80 -8.29 4.62   1673 1610 1660 1941 30.09 29.19 24.96 3.50 3.58
Laboratory Corp. of America (NYSE:LH) 108.25 121.22 11.98 6.15 26.64   695 680 777 871 17.83 15.60 13.92 8.75 9.90
Mallinckrodt PLC (NYSE:MNK) 97.91 117.72 20.23 11.43 36.32   317 494 741 900 23.83 15.89 13.08 24.09 28.79
Mylan, Inc. (NASDAQ:MYL) 57.60 67.86 17.81 -0.96 32.22   289 356 412 465 19.06 16.47 14.59 14.26 13.14
Regeneron Pharmaceuticals (NASDAQ:REGN) 413.48 510.13 23.37 -4.86 25.53   381 1000 1117 1345 51.01 45.67 37.93 20.21 18.86
Vertex Pharmaceuticals (NASDAQ:VRTX) 118.41 123.48 4.28 184.21 11.84   -198 -314 -108 499 na na 24.75 19.00 29.90
Waters Corporation (NYSE:WAT) 114.35 128.38 12.27 -2.70 12.91   504 548 577 632 23.43 22.25 20.31 9.42 9.08

Average       14.18 16.80 16.76           27.44 23.40 22.49 16.30 16.13

Earnings Growth & P/E Ratios 6-30

Fiscal and calendar years are not in sync. ABC, BDX, CAH, MCK, MDT and PRGO began fiscal 2015 at least one quarter earlier than calendar 2015. Several stocks sell at valuations based on their drug pipelines - and short-term growth in EPS fails to capture a growth picture which is expected to come in 2016 and beyond. BMY is a good example. 2017 EPS projection along with the 2016 projections for GSK and NVO are from NASDAQ. The rest of the projections are from Yahoo Finance.


  Earnings / Share Earn. Growth P/E Ratios 15 EPS Range
Co. 2011 2012 2013 2014 2015 2016 2017 13-14 14-15 15-16 2014 2015 2016 High Low Range

A 295 312 288 304 170 197 220 5.56% -44.08% 15.88% 12.69 22.69 19.58 171 167 2.35%
ABBV 0 0 314 332 424 497 578 5.73% 27.71% 17.22% 20.24 15.85 13.52 433 414 4.48%
ABC 251 276 314 397 492 555 636 26.43% 23.93% 12.80% 26.79 21.61 19.16 505 485 4.07%
ABT 0 174 201 228 216 241 288 13.43% -5.26% 11.57% 21.53 22.72 20.37 220 213 3.24%
AMGN 533 651 760 870 958 1056 1214 14.47% 10.11% 10.23% 17.65 16.03 14.54 990 923 6.99%
AZN 733 641 506 428 421 408 389 -15.42% -1.64% -3.09% 14.89 15.13 15.62 427 415 2.85%
BAX 431 453 467 490 395 406 451 4.93% -19.39% 2.78% 14.27 17.70 17.22 425 321 26.33%
BAYRY 0 688 745 799 800 749 na 7.25% 0.13% -6.37% 17.65 17.62 18.82 806 802 0.50%
BCR 640 657 578 840 902 995 1101 45.33% 7.38% 10.31% 20.32 18.92 17.16 911 897 1.55%
BDX 533 537 581 625 708 847 950 7.57% 13.28% 19.63% 22.66 20.01 16.72 712 702 1.41%
BMY 228 199 182 185 176 230 304 1.65% -4.86% 30.68% 35.97 37.81 28.93 186 166 11.36%
CAH 267 321 373 384 437 491 561 2.95% 13.80% 12.36% 21.78 19.14 17.04 453 435 4.12%
DGX 285 392 400 410 476 512 535 2.50% 16.10% 7.56% 17.69 15.24 14.16 488 430 12.18%
GILD 181 171 201 809 1074 1100 na 302.49% 32.76% 2.42% 14.47 10.90 10.64 1262 1006 23.84%
GSK 325 353 373 296 238 276 307 -20.64% -19.59% 15.97% 14.07 17.50 15.09 238 237 0.42%
JNJ 500 510 552 597 614 641 679 8.15% 2.85% 4.40% 16.32 15.87 15.20 624 607 2.77%

  Earnings / Share Earn. Growth P/E Ratios 15 EPS Range
Co. 2011 2012 2013 2014 2015 2016 2017 13-14 14-15 15-16 2014 2015 2016 High Low Range

LLY 441 339 415 278 316 351 394 -33.01% 13.67% 11.08% 30.03 26.42 23.79 325 311 4.43%
MCK 486 638 633 835 1259 1454 1669 31.91% 50.78% 15.49% 26.92 17.86 15.46 1275 1240 2.78%
MDT 337 346 375 382 438 486 490 1.87% 14.66% 10.96% 19.40 16.92 15.25 448 435 2.97%
MRK 377 382 349 349 344 381 396 0.00% -1.43% 10.76% 16.31 16.55 14.94 347 330 4.94%
NVO 102 142 167 162 187 229 262 -2.99% 15.43% 22.46% 33.80 29.28 23.91 197 177 10.70%
NVS 378 389 501 523 517 549 617 4.39% -1.15% 6.19% 18.80 19.02 17.91 520 515 0.97%
PFE 231 219 222 226 204 235 252 1.80% -9.73% 15.20% 14.84 16.44 14.27 210 200 4.90%
PRGO 401 499 561 639 768 893 986 13.90% 20.19% 16.28% 28.92 24.07 20.70 780 728 6.77%
RHHBY 140 162 156 156 190 211 na 0.00% 21.79% 11.05% 22.48 18.46 16.62 194 186 4.21%
SNY 348 319 340 345 316 320 352 1.47% -8.41% 1.27% 14.36 15.67 15.48 318 313 1.58%
STJ 328 239 376 398 395 433 471 5.85% -0.75% 9.62% 18.36 18.50 16.88 398 391 1.77%
SYK 372 407 423 473 503 551 597 11.82% 6.34% 9.54% 20.21 19.00 17.34 515 497 3.58%
TEVA 497 535 501 507 522 509 526 1.20% 2.96% -2.49% 11.66 11.32 11.61 540 504 6.90%
TMO 416 494 542 696 734 813 891 28.41% 5.46% 10.76% 18.64 17.68 15.96 752 730 3.00%
ZBH 480 530 575 606 637 673 698 5.39% 5.12% 5.65% 18.02 17.15 16.23 682 630 8.16%
ZTS 0 108 142 153 165 191 232 7.75% 7.84% 15.76% 31.52 29.22 25.25 168 161 4.24%

Sector Average           15.38% 6.12% 10.44% 20.41 19.32 17.36     9.32

Disclosure: I am/we are long ABC, ABT, AMGN, GILD, NVO, STJ, SYK.