Company Name: Teva Pharmaceutical Industries
Entry Price: $11.90
Target Price: $18
Projected Yield: 51.20%
Time Line: 3 to 6 months
Teva Pharmaceutical Industries is one of the world's leading pharma companies with 1,800+ medical products and drugs. It is mainly focused on producing generics, i.e. cheaper copies of original drugs, as well as drugs for multiple sclerosis and central nervous system disease treatment.
What's the Idea?
Capitalize on a stock that may rise with legal proceedings resolution, a decrease in the debt burden, and positive growth.
Buy Teva Shares >>
Why Trade Teva?
Reason 1: Possible Legal Action Resolution
Teva shares have lately been downtrending because of various risks. Once those issues are resolved, the price may well go upwards.
The main issue are legal actions taken against the company, the most serious of which being the opioid scandal last year. It was actually settled, as the company was obliged to donate Suboxone for opioid addiction treatment worth $23B and pay $250M in cash over 10 years. Curiously, the drug was supplied at the list price, while its base cost is just $1.50B. Anyways, once that was settled, that could not but cheer the investors.
In August 2020, however, the US Department of Justice sued two Teva's business units, Teva Pharmaceuticals USA Inc. and Teva Neuroscience Inc., accusing them of illegally promoting sales of Copaxone within Medicare. The sources report that Teva paid over $300M to two third-party intermediary funds to cover part of the Medicare obligations to Copaxone patients. If the revolution is negative for Teva, the company will be fined again; the investors did not like it and let the stock drop by over 10%. The amount of the fine is not expected to have a significant impact on the company operations, though.
Reason 2: Positive Financial Data
An additional risk of Teva is high debt burden, which appeared after acquiring Actavis Generics, another generic manufacturer, as it was not quite successful. However, despite the legal actions and economic hardships due to COVID-19, the company is still gradually improving its financial position by reducing operating costs, getting higher margins and lowering the debt burden. Over the last three years, Teva managed to reduce the operating expenses by $3B per year, while the net debt got $10B less.
Over the first three quarters of 2020, the company's earnings amounted to $12.20B, which is -1.70% compared to 2019. Meanwhile, the EBITDA and net profit amounted to $3.60B and $2.10B, respectively, with the margin increasing to 26.60% and 17.20%.
Throughout 2020, Teva continued to reduce its debt burden, with the net debt amounting to $23.80B in Q3 2020 against $25.70B a year earlier, and the net debt to EBITDA ratio going from 5.62x to 4.90x over the same period. The company has a stable positive free cash flow, which amounted to $1.64B over Q1-Q3. Despite the current situation across the globe, the company has good financial results and a rather optimistic outlook. The currents estimate is low, with EV/EBITDA and Forward P/E being at 8.00x and 4.5x, respectively, which means the stock is undervalued and may rise if the risks issues get resolved and the positive outlook is still there.
Reason 3: Good Reasons for Growth
While the original drug price is going up, the number or elderly people is also growing, and both are good for Teva. According to The World Bank's data, the over 65 population share increased from 6.90% to 9.10% from 2000 to 2019, with the entire world population also rising.
Meanwhile, developing new drugs is expensive, which means the price will also be so. Cheaper generics by Teva thus make a good competition.
As per IMARC Group data, the global generics market was worth $367B in 2019, while by 2025 it may reach $497B, with an average annual growth of 5.20%.
All this may well help Teva maintain its revenue growth in the midterm.
How to Use the Idea?
- Buy Teva Pharmaceutical Industries stock at $11.90.
- Allocate no more than 2% of your portfolio amount. To build a balanced portfolio, you can use recommendations by our analysts.
- Sell the stock when the price is at $18 per share.
How to Buy Teva Pharmaceutical Industries Shares?
If you don't have an investment account yet, open it now: this can be done online, in just 10 minutes. All you need to do is fill out a short form and verify your account.
After opening an account, you can buy shares in either of the following ways:
Freedom24 Web Platform: Go to the Web Terminal section, type TEVA.US (Teva ticker in the NASDAQ) in the search box, and select Teva Pharmaceutical Industries in the search results. Open a secure session in the trading window on the right, select the number of shares you want to buy, and click Buy.
Freedom24 iPhone or Android App: Go to the Price screen and tab the search icon in the top right corner. In the search dialog that will show up, type TEVA.US (Teva ticker in the NASDAQ) in the search box, and select Teva Pharmaceutical Industries in the results. You will then see the stock in the market watch; tap it and go to the Order tab in the dialog that shows up. Specify the number of shares you want to buy and click Buy.
Buy Teva Pharmaceutical Industries shares to invest into a popular medical drug developer!
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