teva pharmaceuticals
DESCRIPTION
Equity Research Presentation on Teva Pharmaceuticals by CJ WeiTRANSCRIPT
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Teva Pharmacare Industries
CJ Wei 4/19/2011 Recommend: BUY Target Price: $58.60
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Key Stats and Pricing
Criteria Criteria
Current Price (4/20/2011)
$49.15 Operating Margins 58.48
P/E 13.58 Net Profit Margin 20.86
Market Cap $46.77B ROE 16.18
Dividend 1.70% Return on Average Assets
9.43
Teva’s current price provides an attractive entry opportunity
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Presentation Overview
Recommendation
Investment Thesis
Research
Valuation
Risks
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Recommendation
Buy TEVA at Current Market
Price
Provides exposure to healthcare and emerging markets
Value, Growth, and Yield potential
Teva Pharmaceutical is a strong long-term investment with an attractive current price
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Investment Thesis
Leading position in pharmaceutical industry, strategically positioned in attractive markets
Attractive growth prospects, yields, unique value Low risk, defense stock
Hybrid of generic and innovative pharmaceutical products allow stable cash flows
Compliments our overweight healthcare perspective and diversification strategy
Why do I like Teva Pharmaceuticals?
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Teva PharmaceuticalsTeva Pharmaceutical’s product offerings are divided into three categories
Generic Products Branded Products Animal Health
• Copaxone• Azilect• Speciality
Respiratory Products• Women’s Health• Biopharmaceuticals
and Biosimilars
• Generic animal pharmaceuticals
• Market proprietary dermatological and nutraceutical veterinary products in the US
• Sold at prices below originator pharmaceuticals
• Global reach: North America, Europe, International Markets
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Generic Drug Industry
Expiring Patents
Growing Middle Class
Aging Population
Emerging Market Growth
Key drivers that contribute to a positive revenue outlook
Positive Revenue Outlook
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Investment Thesis I:Global Muscle and ReachTeva’s global operations positions the company to capture generic pharmaceutical growth
Leading Position
• Teva Pharmaceuticals is the leading generic drug company in the US
Global Reach
• North America, Europe, Latin America, Asia, and Israel with operations in more than 60 countries
Historical Growth
• Historical growth rate of 28% a year, 5 times the growth rate of the S&P of 5.2%
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Investment Thesis II:Growth, Yield, ValueGrowth potential shown by recent acquisitions and product launches
Launches in the U.S. of five significant new generic products
Strategic Expansion Strategy
Barr Pharma in 2008 Recent acquisition of Ratiopharm, Laboratoire Theramex, Corporacion Infarmasa
P&G Joint VentureStrong cash position
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Investment Thesis II:Growth, Yield, ValueHealth care reform should increase the demand for cheaper drugs
Impact
big
Pharmaceuticals
Marketing reform to
brand-name drugs
Limits on “pay-
for-delay”
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Investment Thesis II:Growth, Yield, Value
• Dividend yield of 1.77%, growing at an 25% annual clip• 15 dividend increases in the last 5 years
Generous dividend payments
1994
• ½ cent per share / quarter
2000
• 1 ½ cent per share / quarter
2007
• 10 cents per share / quarter
Currently
• 18 cents per share / quarter
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• Currently trading at 11.9 times current year earnings
• Discount of 15.2 times earning level that
Investment Thesis II:Growth, Yield, Value
Nearing lower end of 52-week trading range
52-week trading range: 46.99 - 62.82
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Investment Thesis III:Low Risk InvestmentLow risk going into summer months
Low Beta at .20 Defensive StockDiverse Product
Offering Portfolio
Managed well financiallyLow leverageStrong and diverse pipelineHealth care stability due to inelastic demand
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Case Study 1: September 2000 through April 2002 Teva demonstrates price stability in turmoil
• September 2000 to April 2002• Teva stock declined in price only about 26%• NASDAQ declined 67%
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Case Study 2: February through October 2008Teva demonstrates price stability in turmoil
• February through October 2008• Teva stock declined in price only about 22%• NASDAQ declined 47%
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Investment Thesis IV:MSF + Reynolds Strategy
Health care reform should increase the demand for cheaper drugs
Neither funds have positions in a brand or generic pharmaceutical
Low volatility in uncertain summer monthsHealthcare unintentionally underweight
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Additional Company Info
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Management
“Thanks to the expertise of our integration teams, we will be able to hit the ground running terms of maximizing our new scale and seizing the opportunities for further growth that our leadership position brings us.”
Superior Management team that aims to maximize value for shareholders
Average Tenure 12.3 Years
Average Age 65.3
Executives Members 13
CEO Shlomo Yanai
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Competitors Analysis
ROA: 9.43%ROE: 16.28%Prof. Marg: 8.75%Op. Marg: 23.38%
Teva Pharma (TEVA)
ROA: 3.13%ROE: 5.85%Net Prof. Marg: 5.14%Op. Marg: 8.55%
Watson Pharma (WPI)
Superior Management team that aims to maximize value for shareholders
ROA: 3.09%ROE: 6.64%Net Prof. Marg: 6.34%Op. Marg: 13.34%
Mylan Inc (MYL)
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Key FinancialsRevenue and positive key financials over industry
• From 2009 to 2010, Teva increased sales 16%, earnings per share 35%, and cash 23%
• On pace to nearly double sales by 2015
Stat TEVA Industry
P/E Ratio 13.28 24.27
Beta .20 .62
Sales – 5yr 25.15 8.15
D/E Ratio 31.35 21.15
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Valuation• Target Price: $58.6• WACC: 12%• Terminal Growth: 2%• TVM of FCF: 10x
• Catalyst• Recent company acquisitions• Generic pharmaceutical
growth• Slowed revenue growth due
to competition• Time Horizon • Approximately 1 Year
DCF Analysis
$58.6
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Investment Management ProfessionalsCurrently held by many hedge fund managers including Paulson, Soros, Buffet
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Risks
Success depends on Teva’s ability to commercialize additional pharmaceutical products
Revenue and profits decline easily in generic drug arena Sales of branded products such as Copaxone could be
adversely affected when patent expires Acquisitions diverse risks
Health care reform should increase the demand for cheaper drugs
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Summary
The constant demand for pharmaceutical products should provide a safe investment for summer months: Dominant player in pharmaceutical industry Growth, value, yield Compliments MSF and Reynolds healthcare strategy
BUY recommendation at market price