Teva’s forward valuation multiples
On October 11, Teva Pharmaceutical Industries (TEVA) was trading at a forward PE (price-to-earnings) ratio of 7.5x compared to the industry average PE of 11.5x. Its forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple, a capital-structure-neutral valuation measure, is 10.4x, which is higher than the industry average of 9.4x.
A company’s forward PE ratio reflects the market’s views in regards to the company’s growth potential over the next 12 months. It is calculated by dividing the stock’s current market price by the next-12-month earnings estimate of the company. A high forward PE might be representative of the high growth profile of the stock. However, the bullish investor sentiments regarding a stock might sometimes lead to valuations higher than analysts’ estimates and might signal an overvalued stock.
During late 2017, Teva’s stock prices and valuations had dropped massively as the company registered significant sales declines due to declining Copaxone sales and pricing pressures led by increasing generics competition and other macroeconomic factors. The company made a restructuring plan in December 2017, which it has been executing well. As a result, the company’s fundamentals have improved. However, over the last three months, the company’s stock has declined ~11.2%. Teva’s market capitalization on October 11 was $21.4 billion.
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