It’s been a rough year for Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA), with net income down some 80% since 2015, despite robust global sales that pushed the top line 15% in the other direction.
Moving up the pharma food chain from generics to specialty drug development has been an expensive drag on margins and shareholder patience. But here’s where I see an opportunity.
TEVA is a world-class drug stock trading at barely six times earnings, beaten down to the point where the dividend is worth just shy of 5% a year for those who buy in at current levels. The question here isn’t whether TEVA is cheap, but whether traders can build a position at even lower prices before that high-impact development pipeline finally starts paying out.
I think conditions point to these shares moving higher in the near term — we’re due a 15%-20% bounce on pure oversold statistics if nothing else, and if that burst of relief can find support above $31.80 we may see a more sustained recovery play out.
And there’s a lot of room for recovery. TEVA was a $64 stock back in 2015 before research and patent litigation costs started eating its margins alive. Even then, valuations never got above 13 times current earnings, so it’s going to take a long time for this chart to look expensive compared to anything but itself.
Bottom Line on TEVA Stock
Eventually the pipeline will start delivering regulator-ready clinical results and turn into real products – the calendar looks pretty packed with approximately 50 programs ready for review this year and another 70 going into 2018. That pipeline is why Wall Street is betting that this stock will one day be worth at least $36-$38 again. With TEVA currently trading around $29, that’s huge upside.
Meanwhile, core businesses keep doing the heavy lifting behind the scenes. My models forecast sales reaching the point where they can restart year-over-year profit growth in the fourth quarter, which means the third-quarter earnings release is the last chance to buy into TEVA in decline.
Look at the pipeline and compare it to other global pharma names. If any of those programs excite you, a near-5% dividend yield isn’t bad to lock in here. Then, if TEVA stock keeps falling over the next six months, you can use the dividends to buy more shares at lower levels, locking in even higher yields as the stock gets closer to the big turn.
Hilary Kramer is the editor of GameChangers, Breakout Stocks, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.