We came across a bullish thesis on Teva Pharmaceutical Industries Limited (TEVA) on Kontra Investment Xchange’s Substack by Kontra. In this article, we will summarize the bulls’ thesis on TEVA. Teva Pharmaceutical Industries Limited (TEVA)’s share was trading at $17.11 as of Nov 12th. TEVA’s trailing and forward P/E were 872 and 6.26 respectively according to Yahoo Finance.
A close-up shot of various types of medicines on a table, illustrating the specialty and generic products offered by the pharmaceutical company.
Teva Pharmaceuticals delivered a strong performance for Q3 2024, reflecting significant revenue and earnings growth, and solidifying confidence in its ability to continue expanding both its innovative product pipeline and generics business. The company achieved a 15% year-over-year increase in revenue, totaling $4.3 billion, driven by robust sales across its product lines. Adjusted EBITDA rose by 17% to $1.3 billion, while non-GAAP EPS improved by 16%. Free cash flow was particularly impressive at $922 million, enabling the company to further reduce its net debt, bringing its net debt-to-EBITDA ratio down to 3x, a key milestone in its financial management strategy. These results, combined with the performance of its core and emerging segments, led Teva to raise its full-year guidance to a revenue range of $16.1 – $16.5 billion, up $100 million from its previous forecast. EPS guidance was also increased to $2.40 – $2.50, and free cash flow expectations remained strong at $1.7 – $2 billion. This has positioned Teva for a continued momentum into Q4, with expected margin improvement driven by cost optimization and a favorable revenue mix.
A key contributor to Teva’s success has been its innovative product portfolio. AUSTEDO, for treating tardive dyskinesia and Huntington’s disease, saw a 28% revenue increase to $435 million in Q3, and the company remains confident in meeting its full-year revenue target of $1.6 billion for this drug. The migraine treatment AJOVY posted a 21% growth globally, solidifying its position in the competitive migraine market. Additionally, UZEDY, a newer treatment for schizophrenia, saw impressive initial sales, prompting Teva to raise its revenue guidance for the product to $100 million for the full year.
Teva’s R&D pipeline is also progressing well, with the TL1A program targeting ulcerative colitis and Crohn’s disease expected to present data by year-end. Phase III results for the long-acting injectable olanzapine are anticipated in the first half of 2025, and the company is seeing promising developments in its biosimilars portfolio, including Prolia, with filings accepted by both the FDA and EMA. The biosimilar segment alone is expected to target a market worth approximately $3 billion, with Teva’s portfolio in this area comprising 17 assets with a combined brand value of $60 billion.
The generics business remains a solid pillar of growth for Teva, delivering a 17% growth rate in Q3, driven by the success of complex generics like Revlimid and Victoza. The U.S. market saw a particularly strong performance with a 30% increase in generics sales. The company’s Active Pharmaceutical Ingredients (TAPI) segment also recorded growth, despite an ongoing divestment process expected to conclude by the first half of 2025.
While the company faced challenges in Q3, including a negative impact from currency fluctuations and legal provisions related to antitrust investigations, Teva’s management has proactively addressed these issues. The company’s balance sheet has been strengthened, and its commitment to debt reduction has been recognized by credit rating agencies, leading to an upgrade from Fitch to BB, its first upgrade in over a decade. Teva has repaid $685 million in debt in Q3 and is on track to reduce its net debt-to-EBITDA ratio to 2x by 2027.
Looking ahead, Teva’s strong performance in Q3 and its positive guidance for Q4 position the company well for sustainable growth. The company’s balance of debt reduction, reinvestment in innovation, and continued focus on expanding its product pipeline supports long-term growth prospects. Based on a discounted cash flow (DCF) valuation, Teva’s intrinsic value is estimated at $54.46, suggesting significant upside from its current share price, making it an attractive investment opportunity for long-term investors.
Teva Pharmaceutical Industries Limited (TEVA) is also not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 68 hedge fund portfolios held TEVA at the end of the second quarter which was 58 in the previous quarter. While we acknowledge the risk and potential of TEVA as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than TEVA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.