Teva: Drug pipeline fuels rock-solid growth

The Israeli drugmaker has outstanding management and a history of aggressive acquisitions.

By TheStockAdvisors Feb 9, 2012 9:59AM
By J. Royden Ward, Cabot Benjamin Graham Value Letter

To qualify for a spot in our model portfolios, companies must be leaders in their industries, have a history of rock-solid sales and earnings growth, and be led by outstanding management that will find ways to increase growth.

One such buy is Teva Pharmaceuticals (TEVA). Based in Israel, the company develops, makes and sells generic and proprietary drugs. It has become the largest producer of generic drugs in the world, led by management's aggressive acquisition and product-development programs.

The performance of TEVA has been disappointing for quite some time now. First, investors avoided the company because Copaxone, the company's largest-selling drug, which treats multiple sclerosis, will meet some new competition within the next few years, possibly spelling trouble for Teva.

However, Teva has developed a new oral MS drug, called Laquinimod, that will likely keep Teva in the lead on MS treatment.

Market share will likely diminish somewhat, though. The new drug's efficacy has been questioned, but management is confident it will become a blockbuster.

Next, Teva has had to close several small manufacturing plants, briefly, because of health issues.

In addition, the company had fewer drug launches in 2011 than in previous years. Teva still has a strong pipeline, with more than 200 new drugs in various stages of development.

New launches began to gather speed at the end of 2011 and should continue to accelerate in 2012.

Finally, Teva is acquiring companies and forming joint ventures at a dizzying pace.  Management sees an opportunity to buy drug companies at reasonable prices, which will help it to diversify geographically and product-wise.

Teva's latest proposed purchase of Cephalon will add more than 10% to sales in 2012 and offers rapid growth opportunities.

And its joint venture with Procter & Gamble in Europe, whereby P&G supplies the marketing and TEVA makes the drug and health products, could turn into a big win for both companies, especially if they expand the geographic scope of the venture.

Sales increased 11% and EPS rose 7% in 2011. Sales and EPS will likely increase 11% and 14% respectively in 2012 and accelerate thereafter.

At 8.1 times our 2012 EPS estimate of $5.56, TEVA shares are undervalued. The dividend has been raised aggressively during the past decade and now yields 1.9%.

We believe the stock price will increase to our Minimum Sell Price of $81.01 within two to three years. In our view, TEVA is a very low risk buy.

Related articles:

Tags: TEVA
0Comments

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

109
109 rated 1
276
276 rated 2
421
421 rated 3
629
629 rated 4
511
511 rated 5
538
538 rated 6
686
686 rated 7
507
507 rated 8
331
331 rated 9
109
109 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
KOGKODIAK OIL & GAS Corp10
UPLULTRA PETROLEUM Corp10
TAT&T Inc9
COPCONOCOPHILLIPS9
DVNDEVON ENERGY CORPORATION9
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.