ValueSniper: Why Teva Pharmaceuticals is a good buy

After looking through the financial statements, I have concluded that generic pharmaceutical drug maker Teva, Inc. is trading at a discount right now, and looks to go higher. I will state my rationale, then show you the DCF model.

Teva, Inc. is a global pharmaceutical and drug company that develop generic drugs in all treatment categories. Their global operations are conducted from North America to Latin America to Europe and Asia; they are headquartered in Israel. They have operations in over 60 countries including 40 dosage pharmaceutical manufacturing sites in 19 countries, 28 research and development centers and 21 active pharmaceutical ingredient manufacturing sites. Their most recent major acquisition was Cephalon, Inc in the Fall of 2011.

In their conference call two weeks ago discussing their Q1 2013 earnings, they mentioned that their generics business performed in line with expectations, particularly strong in Eastern and Western Europe. Sales of their most widely sold drug, Copaxone were up 17% year over year and continued to lead the US and global Relapse Remitting Multiple Sclerosis (RRMS) market in sales. Revenue for their other CNS drug, Azilect gained 29% year over year and continues to experience strong prescription growth.

Their Oncology business was up 13% year over year with new plans to launch tbo-filgrastim in the fourth quarter of this year.

They reported revenue 4% lover year over year, mainly due to the anticipation of Provigil going off patent in Q2 2012, along with costs in creating generics for Zyprexa and Lipitor. These expenses were offset by strong generic sales in Europe. Their OTC business this quarter brought in 306 million in revenue, up 56% year over year. They expect US generic business to materially improve in the second half of the year with launches of new generic products in parallel with solid performance of their European generic business increasing revenue by 11% year over year to 873 million.

Looking ahead, they plan to make $5.02 a share this year, which would mean they are trading at a very low P/E of around 8.00 compared to their peers (Mylan 20.8, Jazz 13, Perrigo 26.2). Revenue is expected to say right about the same as last year at $20.2 Billion.

With our population aging, more people in the US and around the world will demand prescription medication, and what better place to invest in than generic drug manufacturers, that reap the benefits after the big pharma names go off patent? Plus, they boast a 2.8% dividend yield, higher than their main competitors (Mylan no dividend, Perrigo .3%). Their shares are currently trading at around $40.00, just $1.50 off of their 2008 low, but went down further after the financial crisis to hit an at that time 4 year low of $35.46. Their all-time high occurred in March of 2010 when they hit $64.54.