Making a Case for Teva Pharmaceutical Industries $TEVA

Teva Pharmaceutical Industries (TEVA) has been expanding and gaining market share through aggressive acquisitions and product development programs recently. Over the past few years, the company has grown to become the largest generic drug company in the world, providing over 400 generic products. It has a large and rapidly-expanding portfolio of products as well as a broadening geographic reach – and its numbers reflect that.

Bill Miller

Over the past five years, Teva’s sales have grown at an average rate of 17% a year while its EPS has grown at an average of 37% a year. The growth was driven largely by acquisitions. Teva’s acquisition of Barr in late 2008 and Ratiopharm in 2010, in particular, have significantly increased the company’s revenue and earnings growth.

We anticipate this strong growth trend will continue in the future. We estimate the company’s revenue will grow around 18% this year, reflecting the acquisition of Cephalon in 2011. Cephalon’s sales in 2010 were about $2.8 billion. Teva bought Cephalon for a total of $6.5 billion in cash in October 2011. The acquisition will not only further strengthen the branded business of Teva, but also offer diversification into other areas such as oncology treatments.

The acquisition is expected to add at least $2 billion revenue to Teva. Analysts expect the acquisition will increase Teva’s EPS by about $0.20 to $0.25 this year. In addition to the Cephalon acquisition, Teva also bought Taiyo last year. Taiyo is a leading generic drug manufacturer in Japan and Teva purchased the company for $934 million in July 2011. The acquisition should help Teva to gain market shares in Asia and boost Teva’s sales in Japan.

But, Teva didn’t only grow through external expansion – the company has also had some significant, and profitable, internal developments. Teva has been continuously developing new products. Like many other drug manufacturers, the company is also faced with the patent expiration of some of its branded products, such as Lipitor, Plavix and Lexapro. In order to offset the negative impact of patent expiration, Teva has launched a number of new generic products, which are expected to generate about $650 million of sales. As of early February this year, Teva had about 177 Abbreviated New Drug Applications (ANDA) before the US Food and Drug Administration (FDA).

Teva is also a dividend growth stock. The company’s current dividend yield is about 2.11% and it has been raising its dividend payments for 12 consecutive years. Last year, Teva boosted its quarterly dividend by over 20% to $0.2253 per share. We expect the company will continue to increase its dividend payouts in the future. Teva has a decent earnings yield of 11% and its earnings are expected to grow at a rate of 8.3% per year over the next couple of years. Plus, its payout ratio is only around 20%, indicating its capability to further raise its dividends.

With regard to valuation, Teva looks good as well. The company is expected to make $5.60 per share in 2012 and $6.06 per share in 2013, versus $4.98 per share for the trailing 12-month. It is currently trading at about $44 per share, so its forward P/E ratio is 7.9 – a significant discount to the industry average of 17.3. A few major competitors of Teva include Watson Pharmaceuticals Inc (WPI) and Perrigo Co (PRGO). Both of them are trading at higher multiples than Teva. Watson’s forward P/E ratio is 11.64 and Perrigo’s is 21.7. Watson’s earnings are expected to grow at 8-9% annually, while Perrigo has a double-digit growth expectation. However, Perrigo is still trading at a premium compared with Teva after its growth potential is taken into account. Its P/E ratio for 2013 is about 19, much higher than the 7.3 for Teva.

Overall we like Teva. It is currently trading at a low price and we see strong growth potential in the company as it is continuously expanding through acquiring other companies and developing new products. Investors can also gain exposure to international markets by investing in Teva as the company operates globally. Hedge funds love Teva too.

At the end of last year, 38 hedge funds reported to own Teva in their 13F portfolios. Curtis Macnguyen’s Ivory Capital initiated a brand new $34 million position in Teva during the fourth quarter last year, while Bill Miller’s Legg Mason Capital Management had $82 million invested in Teva as of December 31, 2011. D. E. Shaw, Boykin Curry, Israel Englander and Tom Gayner were also bullish about Teva.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!