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Are Teva Pharmaceticals' Shares Poised for a Rebound?

TEL AVIV (TheStreet) -- Shares of Israel's Teva Pharmaceuticals (TEVA - Get Report), the world's largest maker of generic drugs, have fallen about 5% so far this week as investors may fear that the company will lose exclusivity to sell its multiple-sclerosis drug, Copaxone, which accounts for 20% of Teva's sales and 50% of its profits.

Some shareholders may be wondering if Teva's stock will rebound. A big clue came in the company's latest earnings report.

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When Teva reported its second-quarter financial results on July 31, it raised its earnings estimates for the year to $4.50 to $4.80 per share if other drug companies are able to launch generic versions of Copaxone and $4.90 to $5.10 if Copaxone maintains its exclusivity. Before, the estimates were for earnings of $4.20 to $4.54 per share with generic competition and $4.80 to $5.10 without it.

In the second quarter, Teva's sales of generic drugs rose 4.5% and the profit margin in the segment rose to 21.2% from 15.6% in the year-earlier quarter. Profit and revenue growth in the segment could partly offset stagnation in Teva's specialty-medicine segment, which had a profit margin of 52.8% in the second quarter and accounted for two-thirds of the company's total operating profit.

Overall, Teva's earnings during the second quarter rose to $1.23 per share, a penny above analysts' estimates and 3 cents higher than a year before. Revenue rose 2% to $5.05 billion.

Shares of Teva closed Thursday at $51.64. They have risen 29% so far this year, compared with a 3.3% gain for the Standard & Poor's 500 Index.

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At the time of publication, the author held no positions in the stock mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

TheStreet Ratings team rates TEVA PHARMACEUTICALS as a Buy with a ratings score of B+. TheStreet Ratings Team has this to say about their recommendation:

"We rate TEVA PHARMACEUTICALS (TEVA) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, increase in net income, expanding profit margins, solid stock price performance and growth in earnings per share. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • TEVA's revenue growth has slightly outpaced the industry average of 5.4%. Since the same quarter one year prior, revenues slightly increased by 2.0%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Pharmaceuticals industry average. The net income increased by 18.1% when compared to the same quarter one year prior, going from $630.00 million to $744.00 million.
  • The gross profit margin for TEVA PHARMACEUTICALS is rather high; currently it is at 62.37%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 14.87% trails the industry average.
  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 34.76% over the past year, a rise that has exceeded that of the S&P 500 Index. Looking ahead, the stock's sharp rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
  • TEVA PHARMACEUTICALS has improved earnings per share by 17.6% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, TEVA PHARMACEUTICALS reported lower earnings of $1.50 versus $2.24 in the prior year. This year, the market expects an improvement in earnings ($4.87 versus $1.50).

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