TEVA Market Research & Analysis Report
Updated Jun 22, 2015

Growth and Balance Sheet

TEVA revenues in the first quarter of 2015 amounted to $5.0 billion, in line with revenues in the first quarter of 2014. Excluding the impact of foreign exchange fluctuations and the divestment of the U.S. OTC plants, revenues grew 8%. Non-GAAP gross profit was $3.1 billion in the first quarter of 2015, up 2% from the first quarter of 2014. Non-GAAP gross profit margin was 61.5% in the first quarter of 2015, compared to 59.7% in the first quarter of 2014. GAAP gross profit was $2.8 billion in the first quarter of 2015, compared to $2.7 billion in the first quarter of 2014. GAAP gross profit margin was 56.9% in the quarter, compared to 53.9% in the first quarter of 2014. Research and Development (R&D) expenditures (excluding equity compensation expenses) in the first quarter of 2015 amounted to $328 million, compared to $351 million, in the first quarter of 2014. Selling and Marketing (S&M) expenditures (excluding amortization of purchased intangible assets and equity compensation expenses) amounted to $908 million, or 18.2% of revenues, in the first quarter of 2015, compared to $963 million, or 19.3% of revenues, in the first quarter of 2014. General and Administrative (G&A) expenditures (excluding equity compensation expenses) amounted to $293 million in the first quarter of 2015, or 5.9% of revenues, both the same as the first quarter of 2014. Two weeks ago, U.S. regulators approved the first generic version of Copaxone, developed by Sandoz, a unit of Swiss drugmaker Novartis and Momenta Pharmaceuticals Inc. It is not yet known when they will launch their drug due to ongoing patent litigation. Teva raised its 2015 outlook for diluted earnings per share excluding one-time items to $5.05-$5.35 from a previous forecast of $5.00-$5.30. Teva declared a quarterly dividend of 34 cents a share.

Valuation

Teva Pharmaceutical Industries Limited P/E stands at 18.77 below the industry average of 20.69, and below the S&P 500 average of 17.50 The company is currently trading above the maximum P/E ratio of 15x, and over the last five years, the company’s shares have traded in the range of 14.40x to 17.90x trailing 12-month earnings. TEVA's current Price/Sales of 2.51 is below the average of its industry of 6.02. TEVA’s head to head comparison to its main competitors shows that the company has gross margin below its peers, and one that is below the industry average. The achieved operating margin of the company is below the average operating margin of the selected competitors, and it is below the industry average. The quarterly revenue is below the industry average. The stock is currently trading below its intrinsic value of $69.30 this suggests that the stock is undervalued at these levels. The beta of 0.03 implies lower volatility of the stock with respect to the S&P 500. TEVA has shown negative earnings consistency over the last five years. Company’s earnings have increased by 9.78% over the same period. The current quarter earnings in comparison to the same quarter last year have decreased by 40.23%. TEVA’s Total Debt/Equity of 48.67 is below the required maximum and it is below the industry average. TEVA’s current price levels are above the maximum level, is trading  14.50% below the 52 week high of $68.75, and the technical analysis give a neutral view of the stock. The majority of analyst ratings are bullish. TEVA has a 2.10% dividend yield and 42% dividend payout ratio.

About TEVA

Teva Pharmaceutical Industries Limited, develops, manufactures, sells, and distributes pharmaceutical products worldwide. The company offers generic pharmaceutical products; and basic chemicals, as well as specialized product families. Its products include Copaxone for multiple sclerosis; Azilect for the treatment of Parkinson’s disease; Provigil and Nuvigil to treat excessive sleepiness associated with narcolepsy, obstructive sleep apnea, and shift work disorders; Fentora and Actiq to treat pain in opioid-tolerant adult patients with cancer; and Amrix for muscle spasm in acute, painful, and musculoskeletal conditions

Competitor Comparison

Teva Pharmaceutical Industries Limited N.V.

Highlights

TEVA as December 31, 2010, it had direct operations in approximately 60 countries, including 40 finished dosage pharmaceutical manufacturing sites in 19 countries, 28 pharmaceutical research and development (R&D) centers and 21 API manufacturing sites. On October 14, 2011, it acquired Cephalon, Inc.  The Company’s global operations are conducted from North and Latin America to Europe and Asia. As December 31, 2010, it had direct operations in approximately 60 countries, including 40 finished dosage pharmaceutical manufacturing sites in 19 countries, 28 pharmaceutical research and development (R&D) centers and 21 API manufacturing sites. On October 14, 2011, it acquired Cephalon, Inc. The stock closed yesterday’s trading session at $60.00. In the past year, the stock has hit a 52-week low of $47.36 and 52-week high of $68.75. TEVA has a market cap of $51.08 billion and is part of the healthcare sector.

Aggressive acquisition strategy    

Strong R&D

Strong Brand Equity in providing efficient storage solution 

Patent expiration      

Decreasing opportunities in generic drugs       

Increasing competition  

TEVA Intrinsic Value

Stock Valuation Model & Intrinsic Value Definitions

Investors should keep an eye open for stocks that are trading within 10% of their 52-week highs, as it is likely to continue in its upward trend. TEVA's 52 week high is $68.75 current price is 60.00, is 14.50% below the 52 week high.

The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 fiscal years, must be "moderate", which in this model states is not greater than 15. Stocks with moderate P/Es are more defensive by nature. The company has a P/E ratio of 18.77 below the average industry P/E ratio of 20.69 and is above the S&P 500 P/E ratio of 17.50.

When there is strong insider ownership which we define as 8% or more, management is more likely to act in the best interest of the company, as their interests are right in line with that of the shareholders. There is no data about insiders ownership of TEVA stock.

The model is using several technical indicators (MACD, RSI, MFI, OBV, position Indicators) to forecast the trend of the stock for 6 and 12 months, and assign a value.

TEVA is trading in the range of $58.75 - $62.45 in the past 30 days. The stock has been showing support at $60.00 and resistance in the $62.50 range. The stock is trading below the 50-Day Moving Average and above the 200-Day Moving Average. The RSI(14) is 49.54. Our indicators give a neutral view on TEVA.

The financial health of the company the higher the better, we evaluate all the financial ratios of the company.

Investor’s sentiment for the stock.

The model assigns a value according to analyst’s recommendation for the stock. Analyst rating on Reuters.com is 8 Buy, 7 Outperform, 7 Hold, 0 Underperform and 1 Sell.

We are searching for EPS numbers that are better than the previous year's. One dip is allowed, but the following year's earnings should be higher than the previous year. TEVA’s annual EPS for the last 5 years were 3.66, 3.09, 2.25, 1.49, 3.56 this type of earnings action is negative.

The company must have a low Debt/Equity ratio, which indicates a strong balance sheet. The Debt/Equity ratio should not be greater than 25% or should be less than the average Debt/Equity for its industry. TEVA’s have total debt/equity ratio of 48.67% which is negative.

The EPS growth for this quarter relative to the same quarter a year earlier is above the minimum 15% that this model likes to see for a "good" growth company. Stocks with improving earnings are worthy of your extra attention. TEVA’s EPS growth for this quarter relative to the same quarter a year earlier is -40.23%, below our target.

This stock valuation model looks for annual earnings growth above 12%, but prefers higher than 20%. TEVA’s annual earnings growth rate over the past five years is 9.78%, below the target growth rate.

¹Tradespoon Score and Outlook: This score conveys Tradespoon’s long-term outlook of 1 to 5 years for a particular stock. Tradespoon uses proprietary methods to rate its trading picks on a scale from 1 to 10, with a 10 being the most favorable expected risk and return outlook. To determine a stock’s rating, Tradespoon uses an advanced algorithm that factors in fundamental and technical analysis to determine a stock's expected risk and return.