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Teva’s Valuation Multiples Compared to Other Generic Drug Players

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Teva Pharmaceutical’s valuation multiples

On September 16, 2016, Teva Pharmaceutical Industries (TEVA) was trading at a forward PE (price-to-earnings) multiple of about 8.3x. Since January 1, 2016, the company has traded at PE multiples of 7.9x–11.0x.

Since June 2015, Teva has consistently traded at discounted valuations compared to Novartis (NVS) and Pfizer (PFE) but at premium valuations compared to Mylan (MYL). Despite strong business fundamentals, Teva has witnessed limited share price growth, mainly on account of investor concerns and litigations related to its Copaxone franchise. (To know more about the recent news related to Copaxone, please refer to Market Realist’s “US Patent and Trademark Office Invalidates Two Copaxone 40 Patents.”)

If this negative trend continues, it could boost Teva Pharmaceutical’s share prices as well as those of the Market Vectors Pharmaceutical ETF (PPH). Teva makes up about 4.3% of PPH’s total portfolio holdings.

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Key strengths

Teva holds significant investment potential because the company has effectively implemented a multi-pronged growth strategy. Since 2014, the company has aggressively pursued business development alliances both in the generic pharmaceuticals and specialty segments.

Based on growth prospects, profit margins, and return to investors, generics pharmaceutical is one of the most lucrative industries in the world. The generic industry also generates significant benefits for entire societies—not just stockholders. Teva has also aligned its business to maximize opportunities while controlling risks. In specialty pharmaceutical, the company is focused on four therapeutic areas: respiratory, migraine and headache, neurodegenerative diseases and movement disorders, and pain.

Additionally, the company has focused on other initiatives involving cost and operational network optimization, boosting cash flows, and improving quality across the entire business.

In the next part, we’ll analyze analyst recommendations for Teva Pharmaceutical Industries and its peers in 2016.

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