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Comparable Multiples Analysis EV/Revenue AbbVie Inc.



Kenya Lopez

Health Care Industry

AbbVie Inc.  Comparable Multiples Analysis.

FIN4370-Securitites Analysis



To determine if a company within the health care industry is doing good or not it can be difficult to evaluate. Even when in general the health care industry has increasing over time, revenues from every company fluctuate year to year. While some companies show success in revenue growth, small increases or decreases overall. Using evaluation strategies as the Discounted Cash Flow model does not reflect an accurate valuation of a company. The following charts represent annual revenues and market cap from five corporation in the industry.  Data was obtained from MarketWatch financials, and it is clearly that not every company experience constant growth over time.

(In Billions) 
Company 2012 2013 2014 2015 2016
Pfizer Inc. PFE 54.66 51.6 49.6 48.85 52.82
UnitedHealth Group Incorporated UNH 110.6 123 131 157.1 184.9
Merck & Co., Inc. MRK 47.35 44.1 42.1 38.77 39.5
Amgen Inc. AMGN 17.19 18.7 20 21.34 22.68
Bristol-Myers Squibb Company BMY 17.62 16.4 15.9 16.56 19.43



The chart shows small fluctuation of revenue in four of the companies, and only in one company constant growth if reflected. So, revenue would not be the only determinant to consider if a company is doing good or bad, or if a company is currently undervalued or overvalued. Therefore, using valuation multiples is a better strategy.



For this evaluation we want to compare the same five industries in this chart which are: Pfizer Inc. (PFE), UnitedHealth Group Incorporated (UNH), Merck & Co. (MRK), Inc. Amgen Inc. (AMGN), and Bristol-Myers Squibb Company (BMY), to AbbVie Inc. (ABBV).
AbbVie Inc. is a company that “discovers, develops, manufactures, and sells pharmaceutical products worldwide.” (yahoofinance:ABBV) It has a market cap of 141.65B, which is within the range of its peers show in this char. Revenues from 2012 to 2016 are as a follow:

18.38B
2012
18.79B
2013
19.96B
2014
22.86B
2015
25.64B
2016

Company Market Cap
Pfizer Inc. PFE 212.32
UnitedHealth Group Incorporated UNH 189.36
Merck & Co., Inc. MRK 175.13
Amgen Inc. AMGN 136.05
Bristol-Myers Squibb Company BMY 104.53


Health Care Public corporations firm                                                                                              :

“Pfizer Inc. discovers, develops, manufactures, and sells health care products worldwide” (Yahoofinance:FZE)

“UnitedHealth Group Incorporated operates as a diversified health and well-being company in the United States.” (Yahoofinance:UNH)

“Merck & Co., Inc. provides healthcare solutions worldwide. It operates in four segments: Pharmaceutical, Animal Health, Healthcare Services, and Alliances segments.” (Yahoofinance:MRK)

“Amgen Inc. discovers, develops, manufactures, and delivers human therapeutics worldwide. It offers products for the treatment of illness in the areas of oncology/hematology, cardiovascular, inflammation, bone health, nephrology, and neuroscience.” (Yahoofinance:AMGN)

“Bristol-Myers Squibb Company discovers, develops, licenses, manufactures, markets, and distributes biopharmaceutical products worldwide.” (Yahoofinance:BMY)

Valuation                                                                                                                       :

For this evaluation enterprise value to sales is used. This ratio gives investors a quantifiable measure of the company’s value to its sales. It determines how many dollars of EV are generated for every dollar of yearly sales. And gives a better idea of increases and decreases in compering other companies. For this ratio the following formula is used:
             




Methodology                                                                                                    :
           
To obtain quantities for the estimate Enterprise value, we calculated the EV average growth from 2014 to 2016 for each company. Financial data was obtained from historical data on Stock Analysis on Net web page.

Company
Historical Enterprise Value
2015
2016
average G
2014
2015
2016
% Growth
% Growth

PFE
 $     211,252
 $     199,475
 $     227,277
-5.6%
13.9%
4.2%
UNH
 $     112,094
 $     124,755
 $     172,079
11.3%
37.9%
24.6%
MRK
 $     171,976
 $     153,717
 $     191,572
-10.6%
24.6%
7.0%
AMGN
 $     120,272
 $     110,844
 $     122,109
-7.8%
10.2%
1.2%
BMY
 $       92,159
 $     103,078
 $     100,322
11.8%
-2.7%
4.6%



Historical revenues were obtained from financial statements publish in Yahoo Finance, following the same procedure as the EV to obtains future forecast.

Company
Historical Revenue
2015
2016
Average
2016
2015
2014
% Growth
% Growth

PFE
52,824,000
48,851,000
49,605,000
-2%
8%
3.3%
UNH
184,840,000
157,107,000
130,474,000
20%
18%
19.0%
MRK
39,807,000
39,498,000
42,237,000
-6%
1%
-2.9%
AMGN
22,991,000
21,662,000
20,063,000
8%
6%
7.1%
BMY
19,427,000
16,560,000
15,879,000
4%
17%
10.8%

 

Valuation Based on Comparative Revenue Multiples                                           :

The mean and median multiples are used to determine adjusted enterprise for AbbVie Inc.

Company


EV/RV
Ticker
2016
2017E
2018
2019
Pfizer Inc.
PFE
4.303
4.34
4.38
4.42
UnitedHealth Group Incorporated
UNH
0.931
0.97
1.02
1.07
Merck & Co., Inc.
MRK
4.813
5.30
5.84
6.43
Amgen Inc.
AMGN
5.311
5.02
4.75
4.49
Bristol-Myers Squibb Company
BMY
5.164
4.88
4.60
4.34
Mean

4.10x
4.10x
4.12x
4.15x
Media

4.81x
4.88x
4.60x
4.45x







AbbVie Inc
Mean Public Multiple
(In Billions)
2016
2017E
2018E
2019E
Revenue
25.6
29.1
32.9
37.33
Mean Public Multiple
4.1x
4.10x
4.12x
4.15x
Adjusted Implied EV
105.116
119.139
135.691
154.913

AbbVie Inc
Median Public Multiple
(In Billions)
2016
2017E
2018E
2019E
Revenue
25.6
29.1
32.9
37.33
Median Public Multiple
4.81x
4.88x
4.60x
4.45x
Adjusted Implied EV
123.319
141.804
151.500
166.11









Using the Adjusted Media Public Multiples, it is more accurate because the market cap
and revenues of this company hierarchically
Abbv is in the middle.
With this we discard the risk of placing this company
with other that has bigger revenues as UnitedHealth Group Incorporated.

Considering the Estimate Enterprise Value for 2017, the last two quarter cash and debt
balances from the balance sheet of 2016 and the
first two quarters of 2017 the following is determined:

Enterprise Value 2017:

141.804
B
Plus: Cash
1-Q 2017
4.74
2-Q 2017
6.09
3-Q 2016
6.22
4-Q 2016
5.1

Total Cash:
22.15
B
Less: Debt
1-Q 2017
0.425
2-Q 2017
3.42
3-Q 2016
0.26
4-Q 2016
0.402
Total Debt:
4.507
B
Shareholder Equity Value
159.447
B
Stocks Outstanding

1.59B
Per Share Value

100.2811
Current Stock Price
90.39
Price: Fair/Undervalue.

The price of the estimated 2017 relative to median public multiples of EV to sales
of ABBV are consider undervalue, but only for a small difference:
(100.281-90.39= 9.891) Thus, the price of the current stock of this
company is considered fair relative to its pears.
This provide security to investors that the current market price
of ABBV stocks are not overvalued, and that eventually
its value is not going to drop unless there is some valuable
information affecting the stock or systematic risk is present. Abbie Inc.’s
current PE ratio is 22.07. Earnings per share 4.07, and its return on equity is 113.57%.





















Works Cited

Amgen Inc. (AMGN) (2017) Profile, business summary. Yahoo!Finance. Retrieved
       from https://finance.yahoo.com/quote/AMGN/profile?p=AMGN
Bristol-Myers Squibb Company (BMY) (2017) Profile, business summary. Yahoo!Finance.
Enterprise-Value-To-Sales. Investopedia. Retrieve from
Merck & Co., Inc. (MRK) (2017) Profile, business summary. Yahoo!Finance. Retrieved
            from https://finance.yahoo.com/quote/MRK/profile?p=MRK
Pfizer Inc. (PZE) (2017). Profile, business summary. Yahoo!Finance. Retrieved from    
Stock Analysis on Net. 100. Us Stock Market leaders. Retrieved
       from  https://www.stock-analysis-on.net/NYSE/Company/AbbVie-Inc/Valuation/Enterprise-
       Value
Securities and Exchange Commission. 10-Q. Retrieved from   
20170331x10q.htm
UnitedHealth Group Incorporated (UNH) (2017). Profile, business summary.






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