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	(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.	(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	(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	(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.	(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	(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.	(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.	(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	(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	(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.	(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	(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.	(GILD)	71.91	0.470	2.61	16.4%	17.4%	0.42	0.42	0.00	0.11	9.30	na
GlaxoSmithKline PLC	(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	(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	(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	(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.	(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.	(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	(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	(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.	(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	(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	(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	(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	(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	(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.	(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.	(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