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Health Care / Pharma Stocks 01-18-17

The distribution sub-sector significantly under performed in 2016 - and it begins 2017 with a dead cat bounce. The Pharm sub-sector slightly under performed in 2016 - and it begins 2017 still under performing. I take this as a reminder that a good Health Care portfolio is sub-sector diversified.

Health Care / Pharma Stocks 01-18-17

Yield in the spreadsheet below is based on the Q4-16 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. The last four columns measure the percentage change in the 2016 EPS projection; the change in the price target since the beginning of the year; the change in the dividend since Q4-15; and the average yearly change in the dividend since Q4-13.

    Div Current Div/ Div/ Percent Change
Company and ticker Price /Quarter Yield EPS17 EPS18 Price Pr+Div EPS17 Target Div 1yr Div 3yr
Agilent Technologies (NYSE:A) 48.32 0.132 1.09 24.7% 22.1% 6.06 6.06 -0.93 0.90 14.78 11.90
AbbVie Inc. (NYSE:ABBV) 61.86 0.570 3.69 41.4% 35.0% -1.21 -1.21 0.18 0.16 11.76 12.73
AmerisourceBergen Corporation (NYSE:ABC) 85.99 0.365 1.70 25.4% 22.7% 9.98 9.98 -0.17 1.14 7.35 16.00
Abbott Laboratories (NYSE:ABT) 40.90 0.260 2.54 43.0% 38.7% 6.48 6.48 0.00 -0.34 8.33 24.86
Amgen Inc. (NASDAQ:AMGN) 154.80 1.000 2.58 32.1% 31.4% 5.88 5.88 0.00 0.96 26.58 28.63
AstraZeneca PLC (NYSE:AZN) 28.47 0.342 4.81 74.3% 65.1% 4.21 4.21 0.00 0.00 -2.29 -0.76
Baxter International Inc. (NYSE:BAX) 46.52 0.130 1.12 24.4% 21.3% 4.92 5.21 -0.47 -0.79 13.04 -13.37
Bayer AG (OTCPK:BAYRY) 107.98 0.705 2.61 33.4% 32.2% 3.55 3.55 0.72 0.00 10.50 19.62
CR Bard Inc. (NYSE:BCR) 235.31 0.260 0.44 9.1% 8.3% 4.74 4.74 -0.18 1.06 8.33 7.40
Becton, Dickinson and Company (NYSE:BDX) 173.42 0.660 1.52 27.8% 25.4% 4.75 4.75 -0.42 -1.19 10.00 10.06
Bristol-Myers Squibb Company (NYSE:BMY) 56.28 0.380 2.70 51.0% 45.1% -3.70 -3.70 0.00 0.00 2.70 2.78
Cardinal Health, Inc. (NYSE:CAH) 75.18 0.449 2.39 29.9% 27.1% 4.46 5.08 0.00 0.32 16.02 14.02
Quest Diagnostics (NYSE:DGX) 92.26 0.400 1.73 29.3% 27.9% 0.39 0.39 0.00 3.80 5.26 10.14
Gilead Sciences Inc. (NASDAQ:GILD) 71.91 0.470 2.61 16.4% 17.4% 0.42 0.42 0.00 0.11 9.30 na
GlaxoSmithKline PLC (NYSE:GSK) 39.30 0.710 7.23 102.9% 102.5% 2.05 3.90 0.00 0.00 16.01 5.12
Johnson & Johnson (NYSE:JNJ) 114.87 0.800 2.79 44.9% 42.4% -0.30 -0.30 -0.14 0.00 6.67 6.62
Eli Lilly and Company (NYSE:LLY) 76.85 0.510 2.65 49.8% 46.6% 4.49 4.49 0.00 0.46 2.00 1.35
McKesson Corporation (NYSE:MCK) 148.43 0.280 0.75 8.9% 9.1% 5.68 5.88 -0.16 0.00 0.00 5.56
Medtronic Inc. (NYSE:MDT) 75.82 0.430 2.27 37.6% 34.3% 6.44 7.05 0.00 -1.11 13.16 15.56
Merck & Co. Inc. (NYSE:MRK) 61.48 0.460 2.99 47.5% 44.7% 4.43 5.21 0.26 1.38 2.22 1.50
Novo Nordisk A/S (NYSE:NVO) 36.20 0.182 2.02 32.4% 29.4% 0.95 0.95 0.90 0.00 -3.95 5.99
Novartis AG (NYSE:NVS) 71.99 0.667 3.71 55.7% 46.7% -1.17 -0.25 -1.03 0.00 -5.21 1.95
Pfizer Inc. (NYSE:PFE) 32.06 0.300 3.74 45.6% 41.7% -1.29 -1.29 0.00 0.00 7.14 7.72
Perrigo Company PLC (NASDAQ:PRGO) 76.55 0.145 0.76 7.7% 7.1% -8.03 -8.03 -0.13 0.00 16.00 17.24
Roche Holding AG (OTCQX:RHHBY) 29.47 0.250 3.39 51.8% 48.8% 3.29 3.29 0.00 0.35 -7.75 -0.12
Sanofi (NYSE:SNY) 40.96 0.407 3.98 55.3% 50.2% 1.29 1.29 -0.34 -3.95 1.37 -3.96
Stryker Corporation (NYSE:SYK) 122.55 0.425 1.39 26.6% 24.1% 2.29 2.29 0.00 0.56 11.84 11.70
Teva Pharmaceutical Industries (NYSE:TEVA) 33.75 0.340 4.03 27.1% 25.3% -6.90 -6.90 -7.89 -16.24 -0.00 1.53
Thermo Fisher Scientific, Inc (NYSE:TMO) 145.05 0.150 0.41 6.5% 5.9% 2.80 2.80 -0.76 -0.42 0.00 0.00
Zimmer Biomet Holdings, Inc. (NYSE:ZBH) 115.45 0.240 0.83 11.1% 10.1% 11.87 12.10 -0.12 0.00 9.09 6.36
Zoetis Inc. (NYSE:ZTS) 53.22 0.095 0.71 16.3% 14.2% -0.58 -0.58 -0.43 0.00 15.15 13.49
Average       2.43 35.2% 32.3% 2.52 2.70 -0.36 -0.41 7.27 8.05
With the 10 Treasury at 2.3% and the sector average yield on Q4 dividends at 2.43% - the spread is 5 basis points.
The cap weighted ETF XLV has changed 2.35% year to date - with dividends included, its total return is 2.35%.
The yield on the XLV is 1.57% using the sum of LTM dividends - while LTM dividend growth is 7.01%.

The Predictive Power of subsector on Valuations 2017 YTD: There is a huge difference in the type of products or services that this universe produces. Could that difference account for differences in performance and valuation? Note: Some companies are so well diversified that the sub-sector assignment is partially arbitrary.

The following stocks were in the Distribution sub-sector: ABC, CAH and MCK. Their YTD mean price gain = 6.71% and 3 of the 3 beat the sector mean yearly price gain of 2.52%. Their mean yield = 1.61% and they had an average price/earnings ratio = 13.22. Their mean LTM dividend growth = 11.09% and they had an average CAGR projection of 11.00.

The following stocks were in the Medical devices sub-sector: BAX, BCR, BDX, MDT, SYK and ZBH. Their YTD mean price gain = 5.84% and 5 of the 6 beat the sector mean yearly price gain. Their mean yield = 1.26% and they had an average price/earnings ratio = 18.32. Their mean LTM dividend growth = 10.63% and they had an average CAGR projection of 8.20.

The following stocks were in the Pharmaceutical sub-sector: ABBV, AMGN, AZN, BAYRY, BMY, GSK, JNJ, LLY, MRK, NVO, NVS, PFE, RHHBY, SNY, TEVA and ZTS. Their YTD mean price gain = 0.94% and 6 of the 16 beat the sector mean yearly price gain. Their mean yield = 3.35% and they had an average price/earnings ratio = 14.86. Their mean LTM dividend growth = 5.10% and they had an average CAGR projection of 6.18.

The following stocks were in the Diagnostic sub-sector: A, DGX and TMO. Their YTD mean price gain = 3.08% and 2 of the 3 beat the sector mean yearly price gain. Their mean yield = 1.08% and they had an average price/earnings ratio = 18.43. Their mean LTM dividend growth = 6.75% and they had an average CAGR projection of 8.33.

The Predictive Power of subsector on Valuations in 2016: There is a huge difference in the type of products or services that this universe produces. Could that difference account for differences in performance and valuation? Note: Some companies are so well diversified that the sub-sector assignment is partially arbitrary.

The following stocks were in the Distribution sub-sector: ABC, CAH and MCK. Their YTD mean price gain = -24.26% and 0 of the 3 beat the sector mean yearly price gain of -5.77%. Their mean yield = 1.68% and they had an average price/earnings ratio = 12.91. Their mean LTM dividend growth = 11.09% and they had an average CAGR projection of 11.00.

The following stocks were in the Medical devices sub-sector: BAX, BCR, BDX, MDT, STJ, SYK and ZBH. Their YTD mean price gain = 13.45% and 6 of the 7 beat the sector mean yearly price gain. Their mean yield = 1.34% and they had an average price/earnings ratio = 19.21. Their mean LTM dividend growth = 10.10% and they had an average CAGR projection of 8.17.

The following stocks were in the Pharmaceutical sub-sector: ABBV, AMGN, AZN, BAYRY, BMY, GSK, JNJ, LLY, MRK, NVO, NVS, PFE, RHHBY, SNY, TEVA and ZTS. Their YTD mean price gain = -9.84% and 7 of the 16 beat the sector mean yearly price gain. Their mean yield = 3.38% and they had an average price/earnings ratio = 15.61. Their mean LTM dividend growth = 5.10% and they had an average CAGR projection of 6.18.

The following stocks were in the Diagnostic sub-sector: A, DGX and TMO. Their YTD mean price gain = 12.54% and 3 of the 3 beat the sector mean yearly price gain. Their mean yield = 1.06% and they had an average price/earnings ratio = 19.37. Their mean LTM dividend growth = 6.75% and they had an average CAGR projection of 8.33.

Earnings Growth & P/E Ratios 01-18

Fiscal and calendar years are not in sync. ABC, BDX, CAH, MCK, MDT and PRGO began fiscal 2017 at least one quarter earlier than calendar 2017. 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 2018 and beyond. 2018 EPS projections are from NASDAQ. The rest of the projections are from Yahoo Finance. BAYRY and RHHBY still lacked 2018 projections - but since I need those numbers in multiple spreadsheets, I have provided temporary guesstimates for them.


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

A 295 312 288 304 174 198 214 5.56% -42.76% 13.79% 15.89 27.77 24.40 225 213 6.06%
ABBV 0 0 314 332 429 482 551 5.73% 29.22% 12.35% 18.63 14.42 12.83 485 481 0.83%
ABC 251 276 314 397 496 562 575 26.43% 24.94% 13.31% 21.66 17.34 15.30 582 569 2.31%
ABT 0 174 201 228 215 221 242 13.43% -5.70% 2.79% 17.94 19.02 18.51 223 219 1.81%
AMGN 533 651 760 870 1038 1155 1246 14.47% 19.31% 11.27% 17.79 14.91 13.40 1213 1139 6.41%
AZN 367 321 253 214 213 207 184 -15.42% -0.47% -2.82% 13.30 13.37 13.75 212 201 5.31%
BAX 234 246 254 266 138 191 213 4.72% -48.12% 38.41% 17.49 33.71 24.36 193 188 2.62%
BAYRY 0 688 745 799 763 796 845 7.25% -4.51% 4.33% 13.51 14.15 13.57 808 789 2.39%
BCR 640 657 578 840 908 1026 1137 45.33% 8.10% 13.00% 28.01 25.92 22.93 1030 1023 0.68%
BDX 533 537 581 625 716 859 948 7.57% 14.56% 19.97% 27.75 24.22 20.19 961 942 2.21%
BMY 228 199 182 185 201 286 298 1.65% 8.65% 42.29% 30.42 28.00 19.68 295 271 8.39%
CAH 267 321 373 384 438 546 601 2.95% 14.06% 24.66% 19.58 17.16 13.77 562 541 3.85%
DGX 285 392 400 410 477 510 546 2.50% 16.34% 6.92% 22.50 19.34 18.09 512 508 0.78%
GILD 181 171 201 809 1261 1261 1147 302.49% 55.87% 0.00% 8.89 5.70 5.70 1180 1100 6.34%
GSK 325 353 373 296 232 258 276 -20.64% -21.62% 11.21% 13.28 16.94 15.23 247 267 -7.75%
JNJ 500 510 552 597 620 671 713 8.15% 3.85% 8.23% 19.24 18.53 17.12 677 667 1.49%

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

LLY 441 339 415 278 343 354 410 -33.01% 23.38% 3.21% 27.64 22.41 21.71 358 342 4.52%
MCK 486 638 633 835 1111 1208 1254 31.91% 33.05% 8.73% 17.78 13.36 12.29 1292 1240 4.30%
MDT 337 346 375 382 428 437 457 1.87% 12.04% 2.10% 19.85 17.71 17.35 460 455 1.14%
MRK 377 382 349 349 359 379 387 0.00% 2.87% 5.57% 17.62 17.13 16.22 382 372 2.64%
NVO 102 142 167 162 201 217 225 -2.99% 24.07% 7.96% 22.35 18.01 16.68 221 215 2.76%
NVS 378 389 501 523 483 472 479 4.39% -7.65% -2.28% 13.76 14.90 15.25 487 401 18.22%
PFE 231 219 222 226 220 242 263 1.80% -2.65% 10.00% 14.19 14.57 13.25 246 238 3.31%
PRGO 401 499 561 639 773 696 753 13.90% 20.97% -9.96% 11.98 9.90 11.00 713 685 4.02%
RHHBY 140 162 156 156 175 183 193 0.00% 12.18% 4.57% 18.89 16.84 16.10 182 183 -0.55%
SNY 348 319 340 345 282 306 295 1.47% -18.26% 8.51% 11.87 14.52 13.39 312 299 4.25%
SYK 372 407 423 473 512 578 640 11.82% 8.25% 12.89% 25.91 23.94 21.20 579 575 0.69%
TEVA 497 535 501 507 542 512 502 1.20% 6.90% -5.54% 6.66 6.23 6.59 520 505 2.93%
TMO 416 494 542 696 739 825 918 28.41% 6.18% 11.64% 20.84 19.63 17.58 830 822 0.97%
ZBH 480 530 575 606 690 792 866 5.39% 13.86% 14.78% 19.05 16.73 14.58 795 789 0.76%
ZTS 0 108 142 153 173 194 233 7.75% 13.07% 12.14% 34.78 30.76 27.43 197 191 3.09%

Sector Average           15.19% 6.87% 9.50% 18.41 18.30 15.92     3.12

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