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Leigh Baldwin & Co.

112 Albany Street, Cazenovia, NY 13035 | Phone: (315) 655-2964 Toll Free: 1-800-659-8044

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Stock of the Week

Teva Pharmaceuticals

March 25th 2011 Teva Pharmaceuticals
NYSE Symbol: TEVA
Industry: Drugs
Price as of 3/25: $50.41


The major averages have snapped back pretty well in the last week rallying 6 of 7 days. Thursday last week to Monday of this week was the best three day rally for the major averages since September. As scary as it sounds, the Middle East tensions and the earthquake in Japan have provided another buying opportunity for investors still looking to put money to work. The commodities and industrials continue to perform great. Caterpillar make a new high this week as investors speculate that Japan will need a lot of commodities and trucks to clean up the mess left behind by the earthquake and tsunami. A lot of money has poured into Japanese funds and ETFs this past week taking advantage of their worst selling off since 1987. This week, however, we'll error on the side of caution featuring a blue chip drug maker in a sector that is finally showing some life. The featured stock of the week is Teva Pharmaceuticals. The price performance of most big cap drug stocks have been awful as more and more blockbuster drugs come off patent. However the patent expiration is a positive for Teva particularly since they manufacture generic drugs. So while Teva's stock has not performed well, their earnings and sales continuing to move higher. Trading for less than 10 times earnings, Teva's stock looks attractive. One popular hedge fund manager agrees acquiring a big stake in the last quarter.

Back in February, Teva Pharmaceutical, the world's biggest maker of generic drugs, more than doubled its' profits in the last year as the company continues to expand its European business and sales of its multiple sclerosis drug Copaxone. The Israeli based company reported a profit of $771 million, or 85 cents per share, up from $379 million, or 42 cents per share, a year ago. Excluding a variety of one-time items, Teva earned $1.25 per share, three cents less than expectations. Revenue grew 16 percent, to $4.42 billion from $3.8 billion, but less than expectations. For the full year, Teva said its profit climbed to $3.33 billion, or $3.67 per share, from $2 billion, or $2.23 per share. That was a gain of 67 percent. Revenue rose 16 percent, to $16.12 billion from $13.9 billion. Teva said sales of Copaxone, which is the most-prescribed MS drug in the world, climbed 26 percent to $938 million. Sales of Teva's drug Azilect, a treatment for Parkinson's disease, rose 27 percent to $89 million. However, the company said respiratory drug sales fell 10 percent to $254 million. Teva said its sales in North America grew 7 percent to $2.49 billion. European sales rose 43 percent to $1.32 billion after the company acquired German drugmaker Ratiopharm. The $5 billion deal closed in August. Sales in other markets rose 10 percent to $607 million. With the start of the New Year, Teva continued its international expansion. In January, Teva bought Peruvian drugmaker Corporacion Infarmasa for an undisclosed amount. Looking forward, Teva expects a profit of $4.90 to $5.20 per share in 2011, with revenue of $18.5 billion to $19 billion. Analysts expected a larger profit of $5.28 per share, on average, and $18.89 billion in revenue.

Teva's stock sold off following the earnings release and moved lower through March hopefully bottoming out around $48 a share. Currently, Teva Pharmaceuticals trades for 9.8 times earnings, 8.8 times next years' earnings, 2.7 times sales, and 2 times book value. The company also has a modest dividend yield of 1.7%, but doesn't go ex-dividend again until May. Even though the stock has not performed well in the last year, the analyst community is bullish long term. Oppenheimer reiterated a long term buy rating with a $65 price target indicating that earnings could accelerate in the second half of the year. Hedge fund manager John Paulson initiated a new position in Teva last quarter, acquiring 4.5 million shares. Teva looks like a good value in a sector that is performing better in a market that refuses to sell off.