Teva: A beaten-down buy

The biggest generic-drug maker in the world should start to benefit from the next cycle.

By TheStockAdvisors Oct 10, 2011 12:41PM
By Geoffrey Seiler,

We are adding to our position in Teva Pharmaceutical (TEVA), which is already a holding on our recommended buy list.

Canaccord Genuity just initiated coverage of Teva, and analyst Randall Stanicky placed a "buy" rating and $52 price target on the stock. We agree with his analysis and are making a second purchase of this beaten-down stock.

"Teva has been a frustrating health care stock over the last year given a plethora of headwinds," Stanicky wrote.

"We believe that’s about to change as we head into 2012, where we see an inflection point on all fronts with sentiment at its lows. Bottom line: Setup here is attractive, and we would be buyers into the high $40s."

Among the opportunities the analyst sees in 2012 are a better U.S. generics market, accretion from recent deals, the resolution of manufacturing issues, the take-back of Copaxone rights in the EU, and the potential for a more aggressive buyback plan.

As a result, Stanicky sees the potential for a greater than 30% sustainable EPS benefit compared with 2011.

The Canaccord note on Teva, which spans about 25 pages, is one of the best analyst write-ups we've seen in a while.

Teva has been beaten down relentlessly over the past year, largely over fears of competition, both branded and generic, to its Copaxone franchise.

However, as Canaccord points out, the stock is cheap, even taking Copaxone out of the equation. Teva has opportunities to extend its MS franchise through variant dosing, and Copaxone may cause generics to take longer to gain share given its complexity.

We also believe that the chances of generics affecting Copaxone before the drug is officially set to lose its patent protection in 2014 are small.

Meanwhile, as the biggest generics company in the world, Teva should start to benefit from the next impending generic drug cycle, and the take-back of Copaxone rights in the EU will be a big boost to profits next year.

The company is also gaining a strong branded pipeline with its acquisition of Cephalon, which, if the pipeline lives up to expectations, should start to replace any lost Copaxone revenue right when the drug is officially set to go off patent.

While Teva has performed poorly, we think the valuation is just too cheap on both an absolute basis and a relative basis compared with its pharmaceutical peers. As such, we're going to make our second purchase of the stock.

However, we will lower our target price from $69 to $63, which is just an 11x multiple on the 2012 consensus of $5.71.

Note that analysts are projecting 2013 EPS consensus of $6.07 and the 2014 consensus is $6.05.​​ is a free website that highlights stock recommendations and market commentary from leading financial newsletter advisers.
Tags: TEVA


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.


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.

125 rated 1
267 rated 2
455 rated 3
612 rated 4
682 rated 5
695 rated 6
632 rated 7
472 rated 8
279 rated 9
147 rated 10

Top Picks

TAT&T Inc9



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.