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How Do Teva’s Valuations Compare to Peers?

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Jun. 10 2016, Published 3:50 p.m. ET

Valuation multiples

On June 8, 2016, Teva Pharmaceutical (TEVA) was trading at a forward PE (price-to-earnings) multiple of about 8.8x. Since January 1, 2016, the company has traded at a PE multiple in the range of 8.0x–11.0x.

Since June 2015, generic pharmaceutical company Mylan (MYL) has traded at discounted PE multiples while Pfizer (PFE) has traded at higher multiples as compared to Teva. Akorn (AKRX) has witnessed a downward trend in its PE multiples from 20.4x on January 1, 2014, to 12.5x on June 8, 2016.

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Investor sentiment

After the release of its 1Q16 earnings on May 9, 2016, Teva has witnessed a gradual improvement in overall investor sentiment, which is evident in the gradual rise in the company’s PE multiples. The company has managed to improve its financial performance by focusing on cost optimization and overall profit margins. Teva has also actively pursued strategies to improve operational network performance and efficiency by adopting new technologies.

Though Teva’s leading multiple sclerosis (or MS) drug, Copaxone 20mg/ml, lost its patent protection on May 24, 2014, the company has continued to expand its presence in the MS market with Copaxone 40mg/ml. The drug accounted for 24.5% of the total MS drug prescriptions in the US and made up around 82% of the total prescriptions for Copaxone.

Teva’s newly launched oncology drug, Bendeka, also managed to attain a patient adoption rate of around 71% as of May 2016. Additionally, the company’s global generics business and respiratory business are also witnessing a gradual uptrend in revenues and profit margins.

Strong operational performance, a robust research pipeline, and effective implementation of earnings per share (or EPS) accretive deals are expected to further boost Teva’s earnings as well as valuations in 2016. If the company manages to attain these growth expectations, it may boost Teva’s share price as well as the price of the Vanguard FTSE All-World ex-US ETF (VEU). Teva makes up about 0.22% of VEU’s total portfolio holdings.

In the next part of this series, we’ll analyze the growth prospects of Teva’s Copaxone franchise in greater detail.

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