Teva Pharmaceutical Industries Ltd. (NYSE: TEVA) is a global pharmaceutical company in the medical sector specializing in generic and specialty medications. The company has been suffering under the cloud of the opioid crisis, but that cloud is dissipating as Teva has settled with all 50 states and 99% of all litigation. Most importantly, shares are finally starting to break out of a 5-year trading channel. Investors seeking a long-term and undervalued pharmaceutical play should take a close look at Teva Pharma. Here are 5 reasons you should buy Teva stock sooner rather than later.
1. Opioid crisis liability settlements are mostly behind them
Teva joined in the national opioid settlement in 2023 and agreed to pay up to $4.25 billion over 13 years. As part of the settlement, Teva will offer up to $1.2 billion of generic Narcan for overdose reversal and provide cash at 20% of the $1.2 billion wholesale acquisition cost. The company has also settled various individual lawsuits and claims from states and individuals. Teva has settled with all 50 states and 99% of litigating subdivisions with payments to states starting in the latter half of 2023. The company also reached a separate settlement with the final state of Nevada, agreeing to pay $193 million over 20 years.
2. Earnings and revenue growth is resuming
Teva has stabilized its operating income and narrowed its losses. Teva reported earnings of $1.00 per share in Q4 2023, beating analyst expectations by 23 cents. Revenue increased 15% YoY to $4.5 billion, beating consensus estimates for $4.3 billion. The increase in revenues was driven by higher revenues from generic products in international markets, upfront payment for collaboration on its anti-TL1A asset from Sanofi (NASDAQ: SNY), higher revenues from AUSTEDO and AJOYY, the sale of certain product rights in its Europe segment and higher revenues from Anda.
Teva sees full-year EPS between $2.20 and $2.50 versus $2.41 consensus analyst estimates. Teva raised its full-year 2024 revenue guidance to between $15.7 billion and $16.3 billion versus $15.57 billion analyst estimates. Free cash flow is expected to be between $1.7 billion and $2 billion. Teva has a portfolio of over 3,500 products.
3. Piper Sandler upgrades to Overweight
On February 12, 2024, Piper Sandler upgraded shares of TEVA to Overweight from Neutral, raising its price target to $19 from $12. Analyst David Amsellem expects a potential margin recovery and expansion. He cited the company's changing capital structure, its brand neuroscience business led by its Austedo sales, which jumped 30% YoY in Q3 2023, and a more stable generics and biosimilar business. He also compared valuations with generic drug maker Amneal Pharmaceuticals Inc. (NASDAQ: AMRX) trading at a premium EV.2024E EBITDA. At the same time, Teva has a better net debt/LTM EBITDA ratio and lower multiple. Amsellem commented, "Upon further reflection and dialogue with management, we believe the shares are well-positioned for further multiple recovery/expansion."
4. Selling its active-pharmaceutical ingredient business
The company stated it was planning to divest its ingredients business in July 2023 and confirmed its intention to sell the business again in February 2024 during its earnings release. The sale is part of its Pivot to Growth Strategy and refocus on its core business strengths. While no acquirers or price details have been disclosed, analysts expect it could fetch around $2 billion, which can be used to pay down debt.
5. Cheap valuation
Teva shares are trading at 5.6X forward earnings and 0.91 price-to-sales (P/S) with a market cap of $14.45 billion. It has a 2.23 debt-to-equity ratio with $2.88 in cash-per-share and a book value of $7.25 per share. Most of its debt load was acquired in 2016 to fund its purchase of the generic pharmaceuticals business from Allergan plc (NYSE: AGN) for $40.5 billion. That debt has been halved since. Famed hedge fund titan David Einhorn of Greenlight Capital recently took a stake in Teva as per its February 14, 2024, 13-F filing, indicating a new position of 0.27 million shares.
6. TEVA stock is forming a monthly rectangle breakout pattern
The monthly candlestick chart on TEVA indicates a 5-year rectangle pattern. The upper trendline resistance is around $13.23, which is being tested as the monthly relative strength index (RSI) is rising towards the 70-band. TEVA has tested the upper trendline since February 2021. Pullback support levels are at $10.99, $9.50, $8.75 and $7.09 lower rectangle trendline.
Twilio analyst ratings and price targets are at MarketBeat. Twilio peers and competitor stocks can be found with the MarketBeat stock screener.
