Teva Pharmacueticals offers investors several reasons to buy

Teva Pharmaceutical Industries Ltd. NYSE: TEVA is a global medical pharmaceutical company specializing in generic and specialty medicines. The company has suffered under the shadow of the opioid crisis, but that cloud is dissipating as Teva has settled with all 50 states and 99% of all disputes. More importantly, stocks are finally starting to break out of a five-year trading channel. Investors looking for an undervalued, long-term pharmaceutical business should take a close look at Teva Pharma. Here are 5 reasons why you should buy Teva stock ASAP.

1. Accountability agreements for the opioid crisis are mostly behind them

Teva joined the national opioid settlement in 2023 and agreed to pay up to $4.25 billion over 13 years. As part of the deal, Teva will offer up to $1.2 billion of generic Narcan for overdose reversal and provide cash at 20% of the $1.2 billion wholesale acquisition cost. The company has also settled various individual lawsuits and claims from states and individuals. Teva reached a settlement with all 50 states and 99% of the disputed subdivisions with payments to the states starting in the second half of 2023. The company also reached a separate settlement with the final state of Nevada, agreeing to pay $193 million of dollars in 20 years.

2. Earnings and revenue growth are recovering

Teva stabilized its operating profit and reduced losses. Teva reported earnings of $1.00 per share in the fourth quarter of 2023, beating analysts’ expectations by 23 cents. Revenue rose 15% year over year to $4.5 billion, beating consensus estimates of $4.3 billion. The revenue increase was driven by higher revenues from generic products in international markets, the upfront payment for collaboration on its anti-TL1A business by Sanofi NASDAQ: SNYhigher revenues from AUSTEDO and AJOYY, the sale of some product rights in its Europe segment and higher revenues from Anda.

Teva sees full-year EPS of $2.20 to $2.50 versus consensus analyst estimates of $2.41. Teva raised its full-year 2024 revenue forecast to between $15.7 billion and $16.3 billion from analysts’ estimates of $15.57 billion. Free cash flow is expected to be between $1.7 billion and $2 billion. Teva has a portfolio of more than 3,500 products.

3. Piper Sandler moves on to Overweight

On February 12, 2024, Piper Sandler upgraded shares of TEVA from Neutral to Overweight, raising its price target to $19 from $12. Analyst David Amsellem sees potential recovery and margin expansion. He cited the company’s changing capital structure, the brand’s neurosciences business driven by Austedo sales, which increased 30% year-over-year in the third quarter of 2023, and a more stable generic and biosimilars business. He also compared the ratings with those of the generic drug maker Amneal Pharmaceuticals Inc. NASDAQ: AMRX EV.2024E EBITDA premium trading. At the same time, Teva has a better LTM net debt/EBITDA ratio and a lower multiple. Amsellem commented: “After further reflection and dialogue with management, we believe the shares are well positioned for further recovery/multiple expansion.”

4. Sale of active pharmaceutical ingredients business

The company said it planned to divest its ingredients business in July 2023 and confirmed plans to sell the business again in February 2024 during the earnings release. The sale is part of the Pivot to Growth strategy and the refocusing on the strengths of the core business. While no buyers or pricing details have been disclosed, analysts expect it could bring in around $2 billion, which can be used to repay debt.

5. Economic evaluation

Teva shares are trading at 5.6 times forward earnings and a price to sales (P/S) of 0.91 with a market cap of $14.45 billion. It has a debt-to-equity ratio of 2.23 with $2.88 in cash per share and a book value of $7.25 per share. Most of its debt was acquired in 2016 to finance the purchase of the generic pharmaceuticals business Allergan plc NYSE:AGN for 40.5 billion dollars. The debt has since been halved. Renowned hedge fund titan David Einhorn of Greenlight Capital recently acquired a stake in Teva as per its 13-F filing dated February 14, 2024, indicating a new position of 0.27 million shares.

6. TEVA stock is forming a monthly rectangular breakout pattern

The monthly candlestick chart on TEVA indicates a 5-year rectangular pattern. The upper trendline resistance is around $13.23, which is being tested as the monthly relative strength index (RSI) is rising towards the 70 band. TEVA has been testing the upper trendline since February 2021. The levels The pullback support points are at the $10.99, $9.50, $8.75 and $7.09 lower rectangle trend lines.

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