January 23, 2012 - Teva Pharmaceutical Industries Limited (TEVA-NASDAQ), develops, produces, and markets generic drugs; and proprietary branded pharmaceuticals in various therapeutic categories and active pharmaceutical ingredients worldwide.

The company sells its generic injectable products to hospitals, clinics, and other institutional channels, primarily in the United States and Europe (about 85% of sales), as well as in Latin America and eastern Europe.

Its branded products include Copaxone to treat multiple sclerosis; and Azilect to treat Parkinson's disease, as well as biosimilars, respiratory, and women's health products. The company was founded in 1901 and is headquartered in Petach Tikva, Israel.

What's striking about Teva's stock is its earnings pattern: it just keeps going up. In 2008, earnings per share (eps) were $2.86. 2011 should finish at $4.97 (compared to $4.54 in 2010). This year, 28 analysts have a consensus estimate of $5.61. December numbers should be out in a few weeks. Expect $1.58 for the final quarter vs $1.25 in 2010's last quarter. For the first quarter of this year, look for $1.49 vs $1.04 in last year's first period. For the past 5 years, eps has grown, on average, 18.63% a year. For the next 5, analysts forecast a growth rate of 10.01% a year, on average.

Revenues follow the same pattern. In 208, they were $11.085 billion. 2011 should finish with $18.36 billion (according to the consensus from 27 analysts), up 13.9% from 2010. For 2012, those same 27 analysts see $21.95 billion, higher by 19.5%.

The stock took a beating in 2011, going from a high of $57.10 to a low of $35.00. Most likely because it faced several competitors with their oral formulations against its Copaxone drug, the one for multiple sclerosis. It accounts for aout 20% of revenues or about $3.3 billion. Its patent will expire in 2014. The company had a few setbacks in the year with its own version of the oral drug. There weren't any new generic blockbusters introduced for 2011 either.

However, in mid-year, the company announced a $6.8 billion purchase of Cephalon, a biopharmacuetical company. It paid a 39% premium over the share price before the solicitation was announced. There was a bidding war with Valeant Pharmaceuticals to buy the prize. The Cephalon acquisition, which will increase Teva's reach in areas like oncology, respiratory disease and pain management, is expected to more than double the company's sales of branded drugs to $7 billion. The newly combined company will have more than 30 compounds in late-stage trials.

There's also a stock repurchase program in place. Its $3 billion strong and should take about 3 years to complete. If implemented (remember stock buyback announcements don't require action from the company. It still has the discretion as to whether it actually buys the shares.), the program will help earnings per share continue on their upward trajectory.

There's also a new contract with Procter & Gamble. The partnership will include a joint venture that combines the companies' OTC (over the counter drugs) businesses in all markets outside of North America. The markets included in the joint venture generated sales of more than $1 billion in 2010.

Teva will provide access to its unparalleled portfolio of medicines and global R&D and manufacturing expertise and infrastructure. As part of the partnership, the companies intend for Teva to take global responsibility for manufacturing to supply the joint venture markets and P&G's existing North American business.

All of this good news is making investors forget about last year. The stock is starting to move up and out of its rather tight trading range of the last 6 months.

- Essential Numbers:
- Market Cap: $40.68 billion
- Forward P/E: 8.19
- Price to book: 1.77
- Operating margin: 13.6%
- Profit margin: 6.36%
- Total cash: $1.12 billion
- Total cash per share: $1.27
- Total debt: $8.18 billion
- Current ratio: 1.13
- Book value per share: $25.83
- Beta: .34
- 52 week change: - 13.38%
- Shares Outstanding: 885 million
- Dividend: 69 cents
- Yield: 1.5%
- Payout ratio: 23%

Teva had some challenges last year. It will continue to see strong competition for its MS drug Copaxone. But it's also moving on. It has a new CEO arriving in 4 months and a recent contract with P&G. It looks earnings will continue to improve for some time to come.

- Company Web site: www.tevapharm.com

    Ted Allrich