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Teva’s Record Retreat on Outlook Signals Buy to Gabelli

An employee works with sterile products during the manufacture of pharmaceuticals inside Teva Pharmaceutical Industries Ltd.'s new factory in Godollo, Hungary. Photographer: Akos Stiller/Bloomberg
An employee works with sterile products during the manufacture of pharmaceuticals inside Teva Pharmaceutical Industries Ltd.'s new factory in Godollo, Hungary. Photographer: Akos Stiller/Bloomberg

Dec. 28 (Bloomberg) -- Teva Pharmaceutical Industries Ltd., the world’s largest maker of generic drugs, will rebound from the lowest valuations among peers in 2013 as concern about revenue growth eases, Gabelli & Co. said.

American depositary receipts of Teva fell 1.3 percent to $36.95 yesterday in New York, extending their slump this year to 8.5 percent. The ADRs are poised for a third annual decline, the longest rout on record. The Bloomberg Israel-US Equity Index of the largest New-York traded Israeli companies dropped for a fifth day with Cellcom Israel Ltd. leading the retreat.

Teva, based in Petach Tikva, Israel, has lost 13 percent since Chief Executive Officer Jeremy Levin failed to alleviate investors’ concerns about the company’s outlook as he unveiled on Dec. 11 a plan to replace revenue from branded drugs set to lose patent protection in the next three years. The plunge sent valuations to 6.9 times estimated earnings, the lowest multiple among the world’s 20 biggest drug companies, which have an average price-earnings ratio of 13.6.

“From a valuation standpoint, Teva is certainly very attractive,” Kevin Kedra, an analyst at Gabelli who has a buy rating on the shares, said by phone yesterday from Rye, New York. “Levin has been able to reset the bar lower, so meeting or exceeding those hurdles in the first two quarters would help build his credibility and bring back investors.”

Teva’s shares in Israel dropped 1.6 percent yesterday to 138.5 shekels, or the equivalent of $37.15 as Tel Aviv’s TA-25 Index slipped 0.2 percent to 1,184.12. The Bloomberg Israel-US Equity Index fell 0.6 percent 85, a five-week low.

Discounted Valuation

The company trades at a discount to Johnson & Johnson, the world’s biggest maker of consumer health products, valued at 13.8 times estimated earnings and Eli Lilly & Co., at 14.6 times. The company is also cheaper than generic rivals Mylan Inc., at 10.6 times estimated earnings, and Watson Pharmaceuticals Inc. at 15.1 times.

Levin, who took over the CEO job at Teva in May after rising to senior vice president for strategy at Bristol-Myers Squibb Co., has vowed to develop new branded drugs to compensate for a potential decline in sales of Copaxone, the company’s best-selling multiple sclerosis treatment. Drugs that combat respiratory and central nervous system illnesses were two areas he highlighted.

Copaxone faces competition from newer oral medicines to treat MS and is set to lose patent protection by 2015. The treatment generated $1.05 billion in sales in the third quarter, amounting to 21 percent of total revenue.

Analysts Downgrade

Following the Dec. 11 meeting, Leerink Swann & Co. cut its rating to market perform from outperform, citing a “challenging revenue outlook,” and Wells Fargo Securities LLC removed the shares from its priority stock list.

Seeking to enter new markets, Teva said on Dec. 16 that it formed a business venture with Handok Pharmaceuticals Co. Ltd. in South Korea. Teva will hold a controlling stake with 51 percent of profits.

Levin lowered sales and profit projections for 2013 in November, a move that Kedra said would make it easier to beat analyst projections. Revenue will be between $19.5 billion and $20.5 billion, and earnings excluding some costs will be $4.85 to $5.15 a share, Teva said in a statement.

“Levin has a good track record in developing new drugs, so the feeling at this point is, let’s see what this new CEO can do to boost revenue,” Kedra said.

Nova Measuring

Cellcom, Israel’s biggest mobile phone provider, lost 5.3 percent to $8.07 after shares in Tel Aviv fell 3.9 percent to 31.12 shekels, or $8.35.

Nova Measuring Instruments Ltd., the developer of measuring systems for the semiconductor industry, slipped 0.8 percent to $7.94. Shares in Tel Aviv dropped 1.6 percent to 30 shekels, or the equivalent of $8.05.

Chief Executive Officer Gabi Seligsohn said yesterday that the Ness-Ziona, Israel-based company is considering acquisitions and has $90 million in cash.

“We have been looking at a variety of opportunities for acquisitions for hardware companies with a software component,” Seligsohn said in an interview at Bloomberg’s Tel Aviv offices.

To contact the reporter on this story: Leon Lazaroff in New York

To contact the editor responsible for this story: Emma O’Brien at

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