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Teva Isn't Moving, for Now, If the Israeli Government Hikes Taxes

NEW YORK (TheStreet) -- One of the unintended consequences of the recent fighting between Israel and Hamas in Gaza could be a tax hike to fund a potential budget deficit.

Should the Israeli government raise taxes on citizens and corporations, that might prompt the nation's companies -- such as Check Point Software Technologies (CHKP) and Nice Systems (NICE) -- to move.

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But Teva Pharmaceuticals (TEVA - Get Report) isn't going anywhere, at least not for now.

During his company's most recent conference call, Teva CFO Eyal Desheh said Teva doesn't believe there is a need to relocate the company to improve its tax rate. Even though the tax rate in Israel has risen since the beginning of the year, the current rate is still among the best worldwide. Thus, relocating the company headquarters won't create a substantial advantage as it does for the American companies moving offshore.

Teva pays a very low tax rate of 9% on its profits and has received many tax exemptions so that its tax payments were even lower than it is now. Its shares, at $51, are down nearly 1% for the year to date.

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But that could change. Israel's ministry of defense asked for an additional $2 billion for its 2014 budget and $3.2 billion for next year's budget. That's a 1.7% increase in this year's government budget. Once the war ends and the total economic damage becomes clearer, the minster of finance, Yair Lapid, will have to find a way to fund the potential rise in the government's budget deficit.

At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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

"We rate TEVA PHARMACEUTICALS (TEVA) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance, attractive valuation levels, compelling growth in net income and good cash flow from operations. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."

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

  • TEVA's revenue growth has slightly outpaced the industry average of 4.6%. Since the same quarter one year prior, revenues slightly increased by 2.5%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Powered by its strong earnings growth of 264.15% and other important driving factors, this stock has surged by 32.92% over the past year, outperforming the rise in the S&P 500 Index during the same period. Turning to the future, naturally, any stock can fall in a major bear market. However, in almost any other environment, the stock should continue to move higher despite the fact that it has already enjoyed nice gains in the past year.
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Pharmaceuticals industry. The net income increased by 265.5% when compared to the same quarter one year prior, rising from -$452.00 million to $748.00 million.
  • Net operating cash flow has increased to $1,053.00 million or 20.34% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -18.54%.

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