Teva Pharmaceutical Industries Ltd (ADR) (TEVA) Is Making a Comeback

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Teva Pharmaceutical Industries Ltd (ADR) (TEVA) shareholders were expecting a lackluster Monday morning first-quarter earnings report, judging from the 7% dip TEVA stock logged on Friday. As it turns out though, they needn’t have worried.

Teva Pharmaceutical Industries Ltd (ADR) (TEVA) Is Making a ComebackRealizing they have every reason to see the glass as half-full rather than half-empty, Teva shares are up a healthy 5% today.

That’s not to say everything was stellar. Both the top line and the bottom line fell on a year-over-year basis, and the company’s Q2 outlook was less than thrilling.

Still, with an important acquisition to be completed in June, and what seems like complete recognition the company has to start getting more out of the unfamiliar names in its drug portfolio, Teva owners can see a light at the end of the tunnel.

Teva Pharmaceuticals Earnings

The first-quarter earnings report for Teva requires a close inspection of the fine print.

In December, the company raised $3.3 billion via the sale of TEVA stock, mostly to fund the completed acquisition of Rimsa and to-be-completed purchase of Actavis Generics … a deal slated to be done by the end of next month. Factoring in that fund raise, per-share profits fell from $1.36 a year ago to $1.20 in the first quarter of 2016.

Had it not been for the secondary offering, profits per share of TEVA stock would have rolled in at the same $1.36. Nevertheless, revenue contracted 3%, to $4.81 billion. Even stripping out the adverse impact of currency fluctuations, the company’s top line was lower by 1%.

Either way, the top line and bottom line were both better than the expected $4.77 billion and $1.17 per share, respectively.

Looking ahead, the biopharma company said it anticipates reporting a profit of between $1.16 and $1.20 per share of TEVA stock, on revenue of between $4.7 billion and $4.9 billion. None of the numbers factor in the impact of the Actavis acquisition. Analysts had been modeling revenue of $4.88 billion and profits of $1.18 per share, on average.

Generics Suffering, But…

While the overall results were decent, the company’s bread and butter — generics — weren’t all that impressive. Its generic drug revenue fell 17%, from $2.62 billion to $2.17 billion during the first quarter. This segment’s profit margin fell from 30.5% to $26.9%.

You can mostly thank esomeprazole (Nexium) and budesonide (Pulmicort) for the organization’s weakening generic revenue. Both lost their exclusive status in the United States, and competitors quickly took business away.

And yet, Teva’s specialty drug lines effectively offset ground lost in the generics race. Sales of multiple sclerosis drug Copaxone were up 9% on a year-over-year basis, to $1.0 billion. In fact, total sales of specialty drugs grew 10% on a year-over-year basis, with particularly strong showings from the company’s respiratory treatments and Nuvigil, for the treatment of sleep disorders.

Profit margins from the specialty side of its drug portfolio widened from 50% to 55.1%.

It’s an interesting and encouraging shift that suggests the company is better at branded drugs than most would have expected from the generic drug icon. Perhaps it should be respected as a double-barreled threat.

Bottom Line for TEVA Stock

While the numbers from Teva Pharmaceuticals offer some much-needed hope (as of Friday, shares were down 30% from its July peak), handicapping the company based on its current drug portfolio may bear little fruit. Two months from now, it will own Actavis Generics, vastly expanding its slowly-deteriorating drug portfolio.

The deal, which values Actavis Generics business at $40.5 billion, will add 1,000 drugs to the company’s current generic portfolio. That instant addition could drive double-digit growth of the company’s per-share earnings in its first year, and generate per-share earnings growth in excess of 20% within a few years once Teva Pharmaceuticals — arguably the world’s most potent marketer of generic drugs — has all that new ammunition to work with.

Revenue would likely grow from around $20 billion per year to $26 billion, and make generic drugs Teva’s centerpiece again.

In other words, the Teva the market knows and loves today won’t be the same company two months from now. If it handles the Actavis integration well (and it likely will), the marginal Teva Pharmaceuticals of right now could find itself reliving its glory days from a few years back.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/05/teva-pharmaceuticals-teva-stock-comeback/.

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