Teva Pharmaceutical Overview
February 27, 2005 - Copyright by Morris Rosenthal - - contact info
Company Overviews
Copyright 2005 by Morris Rosenthal
All Rights Reserved
Notes on trading TEVA stock for investing in Israeli stocks
Teva Pharmaceutical is near the top of the pile for both name recognition and market cap amongst Israeli stocks. Primarily known as a generic drug manufacturing juggernaut, TEVA has outperformed the Dow Jones Pharmaceutical index by nearly 200% over the past five years. Interestingly enough, the Dow Jones Total Market index has at least equalled the Pharmaceutical index over the same period, which makes me wonder why pharma stocks get so much attention on CNBC. Teva's current market cap is a little over $17 billion dollars, they have a P/E multiple of 55, pay a 1% dividend and see strong volume for an ADR (American Depository Receipt), over 4.5 million shares per day.
Teva had just under $4.8 billion dollars in total revenue in FY 2004. That's nearly 50% growth of 2003 revenues of $3.3 billion. A major portion of that revenue growth comes from Teva's January 2004 acquisition of SICOR for $3.4 billion, the a Teva press release asserts that that contribution is less than 50%. R&D expenses in 2004 were $356 million, vs $243 million in 2003, while marketing expenses were $696 million in 2004, vs $525 million in 2003. This means that the investment in R&D is growing faster than the advertising budget, but the overall marketing expense remains almost double that of R&D. Net income fell sharply in 2004, from $1.19/share in 2003 to just $0.48/share in 2004. The reason for the huge drop appears to be a nearly $600 million charge for acquisition of "In Process R&D", primarily from the SICOR acquisition, though Teva also purchased an Italian generics maker from Pfizer in 2004.
Gross profit margins in 2004 were over 47%. Teva does almost 2/3 of their sales in the US (which accounts for something like half of the world's drug consumption), followed by around a 25% in Europe and 10% in the rest of the world. wIthout running down the figures, I'd guess that those figures basically correspond with where the demand is. Nearly 90% of Teva's revenue comes directly from the sales of pharmaceuticals.
I haven't traded any TEVA yet. Although it's around 10% off it's recent high and seems to be executing flawlessly, I worry about that P/E for a company who's internal growth is probably in the 30% range, in a highly competitive market with incredible regulatory and liability overhang.For big cap Israeli stocks, I'm probably more likely to try Check Point first, but for the kind of short term trading I'm doing in the SEP, it looks like a low risk play. The whole pharmaceutical industry is one I don't really follow, and I don't really expect the glory days to return.
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