Tel Aviv, Israel-based Teva Pharmaceutical Industries Limited (TEVA) is a leading generic pharmaceutical manufacturer with a portfolio of some 3,500 products. But the company has been linked with several controversies. For instance, on Dec. 30, 2021, a suburban New York jury ruled that TEVA contributed to the opioid crisis and was a public nuisance. TEVA responded that it “will prepare for a swift appeal as well as continue to pursue a mistrial.” The company was previously vindicated in a similar trial in California.

The stock has gained 13.4% in price year-to-date and 8.9% over the past month to close yesterday’s trading session at $9.08. 

TEVA’s third-quarter results were driven by the robust performance of AJOVY in the U.S., Europe, and Japan, and U.S. sales of AUSTEDO. Also, it reduced its net debt to $2.17 billion. So, its near-term prospects look promising.

Here is what could influence TEVA’s performance in the near term:

Consistent Product and Services Innovation

On Dec. 22, 2021, TEVA announced the launch of a first-to-market generic version of Narcan1 in the United States. The company launched an authorized generic of Epiduo1 Forte Gel on Dec. 1, 2021, to treat acne vulgaris. Also, in Oct. 2021, TEVA and MODAG GmbH formed a strategic collaboration on the exclusive worldwide licensing and development of MODAG’s lead compound, anle138b, and a related compound, sery433.

Solid Financials

TEVA’s net revenues decreased 2.3% year-over-year to $3.89 billion for the third quarter, ended Sept. 30, 2021. However, its operating income came in at $623 million, compared to a loss of $4.34 billion in the prior-year quarter. Its net income was $292 million compared to a $4.35 billion loss in the year-ago period, while its EPS was $0.26, compared to a $3.97 loss per share in the prior-year period. Also, its FCF increased 57.1% year-over-year to $795 million.

Discounted Valuation

In terms of forward non-GAAP P/E, TEVA’s 3.58x is 83.4% lower than the 21.51x industry average. And the stock’s 0.80x forward non-GAAP PEG is 58.2% lower than the 1.92x industry average. Furthermore, its 2.03x, 6.76x, and 0.62x respective forward EV/S, EV/EBITDA, and P/Sare lower than the 5.53x, 15.56x, and 6.51x industry averages. 

POWR Ratings Reflect Rosy Prospects

TEVA has an overall B rating, which equates to a Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight distinct categories. TEVA has an A grade for Value, which is in sync with its lower-than-industry valuation ratios.

The stock has a B grade for Growth, which is consistent with analysts’ expectations that its EPS will increase 7.4% year-over-year to $0.73 for the quarter ended Dec. 31, 2021. Also, its EPS is expected to grow at a 3.9% rate per annum over the next five years.

TEVA is ranked #32 of 190 stocks in the Medical – Pharmaceuticals industry. Click here to see the additional POWR Ratings for TEVA (Momentum, Stability, Sentiment, and Quality).

Bottom Line

Even though TEVA is involved in some controversies, it has achieved several positive developments. It possesses sound fundamentals and high profitability. In addition, Wall Street analysts expect the stock to hit $10.50 in the near term, which indicates a potential 15.6% upside. So, we think it could be wise to bet on the stock now.

How Does Teva Pharmaceutical (TEVA) Stack Up Against its Peers?

While TEVA has an overall POWR Rating of B, one might also want to consider investing in its A-rated (Strong Buy) industry peers: GlaxoSmithKline plc (GSK), Merck & Co., Inc. (MRK), and Johnson & Johnson (JNJ).

Click here to checkout our Healthcare Sector Report

TEVA shares were unchanged in premarket trading Wednesday. Year-to-date, TEVA has gained 13.36%, versus a -1.10% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

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