Teva Pharmaceutical (TEVA): Demonstrated Steady, Reliable Growth

By J. Royden Ward, Editor of Cabot Benjamin Graham Value Letter

From Cabot Wealth Advisory 4/27/10 Sign up for free Cabot Wealth Advisory e-newsletter

This company has demonstrated steady, reliable growth in the past and boasts talented management teams with visionary business plans.

Teva Pharmaceutical (TEVA) is based in Israel and develops, makes and sells generic and proprietary-branded (store brand) drugs. The company is one of the largest generic drug producing companies in the world and, in addition, sells active ingredients to other pharmaceutical companies.



TEVA purchased U.S.-based Barr Pharmaceuticals for $7.5 billion in 2008. Barr has increased Teva’s generic drug sales significantly in the U.S. and in parts of Europe.

TEVA will acquire Ratiopharm, based in Germany, for $4.8 billion in 2010. The purchase will make TEVA the leading generic drug maker in Europe. The Ratiopharm acquisition will provide major cost savings and produce significantly higher profits for TEVA.

TEVA recently won two patent cases, which will allow the company to continue to develop and sell two important generic drugs.

Teva’s generic drug business is growing more rapidly worldwide because consumers are opting for the lower priced generics. President Obama’s healthcare plan favors the use of low-priced generic drugs.

Teva’s product pipeline is very strong, with 216 new drug applications waiting for FDA approval, several of which could become blockbusters. Sales rose 21% during the first half of 2009, and EPS increased 12%. We forecast EPS growth of 26% for the next 12-month period with 17% growth thereafter.

Teva’s sales and earnings have continued to grow despite the global recession. Sales, earnings, and dividends have increased every year since TEVA’s initial public offering in 2000. The company’s aggressive acquisition and product development programs are driving remarkable sales and earnings growth. Sales increased 24% and earnings per share jumped 26% during the past 12 months. Our forecast for the next 12 months includes sales growth of 20% and earnings per share growth of 30%.

TEVA shares are clearly undervalued at 13.0 times 12-month forward EPS. The dividend has been raised every year since 2000 and now provides a 1.2% yield.

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Roy Ward
J. Royden Ward


Editor of Cabot Benjamin Graham Value Letter
 
A lifelong investment professional, J. Royden Ward applies his 40 years of investment research, portfolio management, writing and publishing experience to his role as analyst and editor of Cabot Benjamin Graham Value Letter, which is directed to long-term investors seeking a guide to profitable value investing based on the time-tested systems originally developed by Benjamin Graham, the Father of Value Investing. A second-generation disciple of Benjamin Graham, Roy in 1969 pioneered the development of a computerized model that applied the formulas developed by Graham using a unique ranking system. Today, Roy applies his system to two models in the Value Letter.


Teva Pharmaceutical (TEVA): A Generic Drug Pipeline

By J. Royden Ward, Analyst and Editor of Cabot Benjamin Graham Value Letter

From Cabot Wealth Advisory 10/29/09 Sign up for free Cabot Wealth Advisory e-newsletter

Lately, my computer is listing a lot of health care companies with very good potential. In particular, I like companies that produce generic drugs.

Health care reform will hopefully contain measures to reduce health care costs for all Americans. Drug costs are high, and one way to reduce the cost of prescription drugs is to promote the use of less expensive generic drugs. The largest generic drug company is Teva Pharmaceutical (TEVA), which is developing new generic drugs at an amazing rate.

Teva Pharmaceutical, based in Israel, develops, manufactures, and markets generic and proprietary branded (store-brand) drugs. The company is the largest generic drug producing company in the world and, in addition, sells active ingredients to other pharmaceutical companies.  

Teva’s largest selling generic drug, Copaxone, is used to treat multiple sclerosis. The company’s aggressive acquisition and product development programs are driving strong sales growth. TEVA recently purchased U.S.-based Barr Pharmaceuticals for $7.5 billion. Barr is increasing Teva’s generic drug sales significantly in the U.S. and in parts of Europe. The acquisition is already producing higher profits than expected.

Teva’s product pipeline is very strong with 198 new drug applications waiting for FDA approval, several of which could become blockbusters. We forecast earnings growth of 28% during the next 12 months. Teva’s generic drug business is growing more rapidly because consumers around the globe are opting for lower priced generic drugs.

TEVA shares are very reasonably priced at 12.5 times forward EPS with a dividend yield of 1.1%. The company’s sales will increase 18% and EPS growth will likely be close to 28% during the next 12 months and 17% in future years. TEVA is an unbelievable bargain. Buy now.


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