Generic and specialty drugmakers have been experiencing a
profit bonanza as former top-selling products have lost patent
protect in recent years.
, for example, has grown total revenue by a whopping 34% in the
past year alone.
Not all generic-drug makers have participated in this
windfall, however. Diluted earnings per share for
Teva Pharmaceutical Industries Ltd.
, for instance, are expected to flatline moving forward as its
best-selling product, Copaxone for multiple sclerosis, faces
generic competition for certain formulations.Specifically, the
U.S. patent covering the 20 mg dosage of Copaxone expired last
May, helping to drive a 5.8% drop in sales year over year.
Although Teva posted weak sales growth in recent quarters and
an anemic outlook, its stock has done surprisingly well -- rising
a noteworthy 41.7% in the past year. Here are three reasons it
could continue to push higher moving forward.
Reason No. 1
To fight off generic competition for its best-selling and most
profitable product, Teva is switching Copaxone patients to a
double-dose formulation of 40 mg administered three times weekly.
Patients might prefer this new formulation, given that the 20 mg
dose is taken daily.
That being said,
Dr. Reddy's Laboratories
have all reportedly been looking into challenging the patent
covering this double-dose formulation. And because of the
uncertainty surrounding Copaxone's exclusivity, Teva issued a
fairly wide guidance for 2014 in the second quarter, ranging from
$4.50 to $5.10 for the full year.
My take is that this legal drama will take a while to unfold
and therefore shouldn't dramatically affect Teva's double-dosing
strategy anytime soon. Even so, this issue is certainly important
for investors to keep tabs on going forward.
Reason No. 2
Wall Street apparently still believes in this stock. Per the
latest numbers, institutional holdings edged up by 3.11% in the
What's particularly interesting is that institutional holdings
increased last quarter even after a handful of top holders, such
as Soros Fund Management, sold off big chunks. Before the second
quarter, Teva was one of the Soros Fund's largest holdings, but
the closely followed fund sold nearly 30% of its Teva stock in
the second quarter.
All told, I see this net-positive churn in the underlying
institutional buyers, in the wake of some big sales, as a sign
that the Street is remaining bullish on this stock.
Reason No. 3
Teva looks fundamentally undervalued at current levels. Although
the company isn't expected to post strong top-line growth in the
near future, the stock is trading at a forward price-to-earnings
ratio of 11.6 per the
scenario for Copaxone sales. By comparison, the sector average is
currently hovering around 25.
Keeping with this idea, Teva shares are trading at a mere 1.9
times book value. To put this metric into context, Actavis shares
are currently trading right around 4 times book value and Mylan's
are closer to 5 times. In short, Teva's shares look cheap when
compared with some of the company's chief rivals.
Teva is a prime example of why investors need to look beyond top-
and bottom-line growth when attempting to value a company. From a
growth perspective, it would be hard to argue that Teva is worth
consideration. Diluted EPS is projected to dip slightly by 0.49%
next year, and questions abound regarding potential generic
threats to the company's top product.
That said, the company looks cheap from a forward
price-to-earnings and book value perspective, especially compared
with its peers in the generic-drug space. As Teva also offers a
stable dividend yield of 2.27% at current levels, I think this
stock is certainly worth a look for value and income investors
for the next decade
The smartest investors know that dividend stocks simply crush
their non-dividend-paying counterparts over the long term.
That's beyond dispute. They also know that a well-constructed
dividend portfolio creates wealth steadily, while still
allowing you to sleep like a baby. Knowing how valuable such a
portfolio might be, our top analysts put together a
report on a group of high-yielding stocks
that should be in any income investor's portfolio. To see
our free report on these stocks, just
click here now
3 Reasons Teva Pharmaceutical Industries Ltd.
Stock Could Rise
originally appeared on Fool.com.
has no position in any stocks mentioned. The Motley Fool
recommends Momenta Pharmaceuticals and Teva Pharmaceutical
Industries. Try any of our Foolish newsletter services
free for 30 days
. We Fools may not all hold the same opinions, but we all believe
considering a diverse range of insights
makes us better investors. The Motley Fool has a
Copyright © 1995 - 2014 The Motley Fool, LLC. All rights
reserved. The Motley Fool has a