Shares decrease ~3% after earnings

Teva (TEVA) reported its earnings on April 30, 2015, at 7 a.m. Eastern Time, before the New York stock exchanges opened for the day. After the release, Teva’s shares closed trading at $60.42, down ~3% from the previous day’s closing of $62.08. The downward price movement was driven by Teva’s proposal to acquire Mylan (MYL), Mylan’s rejection of the offer, and concerns over Teva’s long-term growth.

The successful acquisition of Mylan should result in the leading generic pharmaceutical company realizing annual revenues of ~$28 billion.

Teva’s Shares Dip over 1Q15 Earnings
2015 outlook raised

Despite the negative impact of currency and an upcoming generic competition for its key drug Copaxone, Teva raised its financial outlook for the full year 2015. The company assumed a mid-year launch of a generic Copaxone drug. Below is the guidance for the key financial metrics:

  • Net revenue estimates in the range of $19.0 billion–$19.4 billion
  • Earnings per share (or EPS) in the range of $5.05–$5.35 from $5.00–$5.30
  • Operating income in the range of $5.7 billion–$5.9 billion

Return to shareholders

Teva has a good track record of returning value to its shareholders through dividend payments and share repurchases. Other players such as Actavis (ACT), Hospira (HSP), and Mylan (MYL) don’t pay dividends. On April 28, Teva declared a cash dividend of $0.34 for 1Q15, which is positive for long-term investors.

Also, the company repurchased ~8 million shares for an aggregate amount of $0.4 billion in 1Q15. This was less than 1% of the market capitalization as of May 5. The share repurchase had a positive impact on its earnings per share.

What to watch

Investors should keep an eye on several factors for the remainder of the year:

  • impact on the company’s profitability with the introduction of a generic Copaxone
  • a proposed offer for the acquisition of Mylan
  • progress toward net cost reductions of $500 million
  • further improvement in the profitability of the generics business

As an alternative to investing directly in Teva, you might consider pharmaceutical funds such as the iShares US Healthcare ETF (IYH), which has holdings in Actavis (ACT), Hospira (HSP), Mallinckrodt (MNK), Impax Laboratories (IPXL), and Perrigo (PRGO). Combined, these companies comprise ~5.38% of the fund’s total holdings.

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