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U.S. Treasury yields jumped sharply, jolting the stock market to its third-worst week of 2023. The best-performing concepts are birth control, cannabis concept, and home furnishing retail.

Considering the different perceptions of the stock, this time TigerPicks choose $Teva Pharmaceutical(TEVA)$ to have a fundamental highlight to help users understand it better.

$Teva Pharmaceutical(TEVA)$

Teva Pharmaceutical founded in Israel in 1944, provides affordable health solutions globally. With a presence in the United States, Europe, and more, its portfolio includes generic medicines, over-the-counter products, and innovative drugs. Teva operates in three segments: North America, Europe, and International Markets, and offers additional services like contract manufacturing.

One possible reason for the rise of Teva stock in the past five days is the announcement of a settlement with the state of Louisiana for opioid-related claims. According to Forbes, Teva will pay $15 million over the course of 18 years to the state, and it will also donate medicines valued at $3 million. This settlement may have eased some of the investors’ concerns about Teva’s exposure to litigations, as the company has been sued by state and local governments over its alleged role in the opioid crisis. The company’s management has also stated that it may reach a settlement for its opioid litigations within a year.

Another possible reason for the rise of Teva stock is its strong second-quarter results, which were reported on August. The company beat analysts’ estimates for both revenue and earnings, and raised its full-year guidance. Teva’s revenue increased by 2.4% year-over-year to $3.88 billion, driven by growth in its generic medicines and specialty products segments. The company’s earnings per share improved by 17.6% year-over-year to $0.56, reflecting lower operating expenses and interest payments. Teva also increased its revenue outlook for 2023 from $16.4-$16.8 billion to $16.6-$17 billion, and its earnings per share outlook from $2.50-$2.70 to $2.55-$2.752.

The financial position of Teva Pharmaceutical and its prospects

Teva Pharmaceutical's revenue for the first three months of 2023 was about $3.66 billion, down 5.7% from the previous quarter, but it remained at the same level as in the first quarter of 2022.

Moreover, Teva's actual revenue beat analysts' consensus estimates in only the last two and nine quarters, which may indicate that Wall Street is overestimating its business prospects. The key culprits behind this trend are declining sales of Copaxone and generics in North America.

Author's elaboration, based on Seeking Alpha

Author's elaboration, based on Seeking Alpha

According to Seeking Alpha, Teva's Q2 2023 revenue is expected to be $3.61-$3.85 billion, up 3.62% from analysts' expectations for the first three months of 2023. While according to our model, the company's total revenue will be slightly higher at $3.74 billion. While according to our model, the company's total revenue will be slightly higher at $3.74 billion.

Sales of Copaxone, a blockbuster drug for treating some forms of multiple sclerosis, have long been a headache for Teva Pharmaceutical management. At this point, the impact of this issue on the company's financial position is exaggerated due to a slowdown in the rate of decline in its sales year-on-year, as well as a decrease in its share, which amounted to only 4% of the company's total revenue for the first quarter of 2023.

Author's elaboration, based on quarterly securities reports

Author's elaboration, based on quarterly securities reports

We believe that this percentage will continue to decline in subsequent quarters, which will undoubtedly positively impact the company's perception by analysts and other market participants.

That being said, Teva's marginal QoQ increase in revenue will be due to higher sales of Ajovy and Austedo, which are currently its flagship medicines. They can partially minimize the damage from the decrease in revenue of the generic medicines segment and the FDA's refusal to approve the Humira biosimilar due to identified shortcomings at $Alvotech(ALVO)$ manufacturing facility.

Thus, sales of Ajovy amounted to $95 million in the 1st quarter of 2023, an increase of 31.9% compared to the previous year due to the rise in the volume of prescriptions and the introduction of an automatic device for drug administration into medical practice. We believe its sales will continue to grow yearly due to the publication of additional data on its effectiveness in combating migraine.

So, on June 30, 2023, Teva Pharmaceutical reported that in the third interim analysis of the PEARL real-world study. According to their data, about 60% of patients taking Ajovy achieved a reduction in the number of monthly migraine days by more than 50% compared to baseline. In addition, about 82.3% of patients continued to use Ajovy during the twelve months of treatment, which is a high value indicating that patients are pleased with the product. This result suggests that patients are not only satisfied with the drug's effectiveness in preventing migraine attacks but also in reducing the severity and duration of remaining migraine attacks.

Overall, we estimate cumulative sales of Ajovy to be $402 million in 2023, up 6.6% year-on-year to $735 million by 2027. On the other hand, sales of the blockbuster Austedo will increase from $963 million to $1.25 billion by the end of 2023, somewhat higher than the company's management guidance.

Created by author

Created by author

In our estimation, the fundamental root causes for Teva's lack of significant revenue growth are its previous R&D strategy, the tense litigation caused by the opioid crisis, and high total debt. However, with the arrival of Richard Francis as CEO, the issue began to improve. The launch of the "Pivot to Growth" strategy will help transform from a company whose main share of revenue comes from the sale of generic drugs to a company that offers customers new-generation medicines that can improve not only the quality of life of patients but also the financial situation of the company. Thus, Teva's R&D spending in Q1 amounted to $234 million, or 6.39% of total revenue, a record high in recent years.

Author's elaboration, based on Seeking Alpha

Author's elaboration, based on Seeking Alpha

Teva Pharmaceutical's Q1 2023 operating income margin was 13.6%, declining sharply quarter-on-quarter due to the higher cost of raw materials needed to manufacture medicines and lower profitability from Anda. However, the company has an extensive portfolio of biosimilars, some of which will appear on the market in the next two years.

Created by author

Created by author

We believe that the Stelara biosimilar, under review by the FDA and a decision on which is expected in the second half of 2023, can significantly improve the company's margins. The first reason is the high sales of J&J's Stelara, which amounted to $2,444 million in the 1st quarter of 2023, an increase of 6.8% compared to the previous year. The second reason is the settlement of the lawsuit with $Johnson & Johnson(JNJ)$. Despite the lack of disclosure of the settlement terms, it is known that they will allow Teva Pharmaceutical to sell their medicine "no later than February 21, 2025."

The company's EPS for the first three months of 2023 was $0.55, in line with the previous year. According to Seeking Alpha, Teva's Q2 EPS is expected to be $0.49-$0.57, down 3.6% from the consensus estimate for Q1 2023. While we believe this is slightly underestimated, our model puts Teva's EPS at $0.54, given the continued expansion of the drug portfolio and declining inflation in the US and the European Union.

At the same time, Teva Pharmaceutical's Non-GAAP P/E [TTM] is 3.42x, which is 81.98% less than the sector average and 16.93% lower than the average over the past five years. On the other hand, Non-GAAP P/E [FWD] is 3.53x.

Author's elaboration, based on Seeking Alpha

Author's elaboration, based on Seeking Alpha

At the end of the March 2023 quarter, Teva Pharmaceutical's total debt was about $21.04 billion, down $2.53 billion from 2021. On the other hand, due to the decrease in the company's EBITDA in recent quarters, the total debt/EBITDA ratio has increased from 5.35x to 5.56x.

Author's elaboration, based on Seeking Alpha

Author's elaboration, based on Seeking Alpha

With Teva Pharmaceutical's total debt/EBITDA ratio exceeding 5x, we expect the company to need to refinance its senior notes maturing in 2026 and 2027 to continue its active R&D program and start working on the issue of beginning dividend payments.

Author's elaboration, based on quarterly securities reports

Author's elaboration, based on quarterly securities reports

Stock Price Forecast:

Here are the target price forecast for the future 12 months from analysts on CNNMoney.com.

The 8 analysts offering 12-month price forecasts for Teva Pharmaceutical Industries Ltd have a median target of 9.50, with a high estimate of 14.00 and a low estimate of 8.00. The median estimate represents a -2.61% decrease from the last price of 9.76.

Resource:

https://seekingalpha.com/article/4621101-quantumscape-executing-well-but-not-quite-a-buy

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