In this article, Teva Pharmaceutical Industries Ltd. and Pfizer Inc. will be analyzed for their recent developments in this article. A quick fundamental and technical analysis will also be reviewed for both stocks.
Teva Pharmaceutical Industries Ltd.
Teva Pharmaceutical Industries Ltd. (TEVA) is the world's largest generic pharmaceutical manufacturer with operations in 60 countries. The company has a pharmaceutical business, whose principal products include Copaxone and Azilect. Teva's active pharmaceutical ingredient (API) business provides vertical integration to Teva's own pharmaceutical production. TEVA closed at $38.68 with 1.90% increase on February 8, 2013. TEVA had been trading in the range of $36.63-$46.38 in the past 52 weeks. TEVA has a low beta of 0.36.
Q4 2012 Earnings and 2013 Outlook
On February 7, 2013, TEVA reported Q4 2012 earnings of $1.32 per American Depositary Share (ADS), a penny short of the Zacks Consensus Estimate and 17% below the year-ago earnings. Q4 revenue also declined 7.5% to $5.25B, missing Zacks Consensus Estimate of $5.27B. Full year 2012 earnings came in at $5.35 per ADS, a penny below the Zacks Consensus Estimate but 7.6% above 2011 earnings. Full year revenues increased 10.9% to $20.32B, shy of the Zacks Consensus Estimate of $20.33B, as reported by Zacks.
For Q4 2012, Teva reported revenue growth only in Europe (up 2%). Revenues declined in the US (down 14%) and RoW (down 3%). Competition from other companies had hurt Teva's revenue. Sales of Provigil, which treats tiredness caused by narcolepsy, obstructive sleep apnea, and changes in work schedule, slid due to cheaper generic competition. On the other hand, Copaxone revenues benefited from the take-back of distribution and marketing rights in Europe from Sanofi SA (SNY). As reported by The Associated Press, generic drugs, which made up slightly more than half of Teva's total revenue, fell 11 percent to $2.7B in the quarter. The decline was largely due to a tough comparison with the final quarter of 2011, "when it saw "extraordinary" contributions from its launch of a generic version of Lilly's antipsychotic Zyprexa and from an agreement related to another company's launch of generic Lipitor, a cholesterol fighter made by Pfizer."
Teva also reaffirmed its 2013 outlook and reiterated 2013 revenue forecast of $19.5-$20.5B with adjusted EPS of $4.85-$5.15. Teva is committed to returning cash to shareholders and is expected to launch a similar number of products (23 generic products in 2012) in 2013. The company clarified that it is fully committed to the generic injectable business. The company also intends to file for approval of a 40 mg thrice-weekly (3TW - three times a week) formulation of Copaxone in March 2013, followed by potential launch a year thereafter. The earnings call transcript for TEVA's CEO discussion on Q4 2012 results can be accessed here at Seeking Alpha.
Fundamentally, TEVA has an enterprise value of $45.31B with a market cap of $33.57B. TEVA has a total cash of $1.43B with a total debt of $13.79B. TEVA generates an operating cash flow of $4.42B with a levered free cash flow of $3.65B. By using Morningstar's data, TEVA's key stats will be compared to its peers in the industry of drug manufacturers (specialty & generic), including Mylan Inc. (MYL) and Allergan, Inc. (AGN). TEVA has higher revenue growth (3 year average) of 18.2, as compared to the average of 14.8. TEVA has lower operating margin of 12.0%, ttm, and net margin of 10.4%, ttm, as compared to the averages of 14.7% and 11.1%, ttm, respectively. TEVA has a lower ROE of 9.4, comparing to the average of 11.8. TEVA's P/E of 15.5 is much lower than the industry average of 34.0 and lower than TEVA's 5 year average of 24.5. TEVA's forward P/E of 6.5 is lower than S&P 500's average of 14.0.
Technically, the MACD (12, 26, 9) indicator is showing a bullish trend and the MACD difference continues to diverge. The momentum indicator, RSI (14), is indicating a bullish lean at 58.46. TEVA is trading below its 200-day MA of $39.72 and has broken through and closed above its 50-day MA of $38.63 in the last trading day, as seen from the chart below.
Pfizer Inc. (PFE) is one of the world's largest pharmaceutical firms, operating through five segments: Primary Care, Specialty Care and Oncology, Established Products and Emerging Markets; Animal Health and Consumer Healthcare, and Nutrition. PFE closed at $26.88 with 0.30% decline on February 8, 2013. PFE had been trading in the range of $20.75-$27.84 in the past 52 weeks. PFE has a low beta of 0.72.
Zoetis, New Spotlight
On February 1, 2013, PFE's former animal health business unit became a standalone company, Zoetis (ZTS), and began trading on New York Stock Exchange. ZTS had gained 4.92% as of February 8, 2013 closing. As stated by Ian Read, chairman and CEO of Pfizer, "With the Zoetis initial public offering, we are creating the largest standalone company fully devoted to animal health medicines and vaccines. For Pfizer, we are better positioned to focus on our core business as an innovative biopharmaceutical company, by unlocking value from the animal health business that will return value to Pfizer shareholders." Zoetis's diversified portfolio of more than 300 product lines spans five categories: vaccines, parasiticides, anti-infectives, medicated feed additives, and other pharmaceuticals for veterinarians and livestock producers.
Speculating, Potential Break-up?
Speculation of a full Pfizer breakup was renewed when Geno Germano, president of the company's specialty care and oncology businesses, told Bloomberg News in a January 8 interview that Pfizer's four drug units are "probably going to evolve to two, where there's the innovative business and the value business," as reported by Bloomberg News. Peter Sorrentino, a senior fund manager at Huntington Asset Advisors Inc. said, "Investors play it cautious and put less of a premium on businesses when there are too many things to understand and analyze. Pulling them apart, you can probably do the shareholders better." Further, Goldman Sachs analyst Jami Rubin estimates the share price of $32 per share by valuing Pfizer's innovation and generic business separately and applying trading multiples based on peers to PFE's 2013 earnings forecast. This break-up talk is still pure speculation. However, Pfizer made a large divestiture by selling its baby-food unit to Nestle SA for $11.9B in April 2012, to shrink the company and concentrate on producing new drugs. According to Bloomberg, this was the largest divestiture since the $16.6B sale of consumer-health brands including Sudafed cold medicine and Bengay pain cream to Johnson & Johnson (JNJ) in 2006. With or without the break-up, Pfizer's management is working on the right track to enhance the company's values for shareholders.
Fundamentally, PFE has an enterprise value of $214.49B with a market cap of $197.91B. PFE has a total cash of $22.98B with a total debt of $38.89B. By using Morningstar's data, PFE's key stats will be compared to its peers in the industry of major drug manufacturers, including Johnson & Johnson and Novartis AG (NVS). PFE has higher revenue growth (3 year average) of 11.8, as compared to the average of 6.9. PFE has a higher operating margin of 26.5%, ttm, comparing to the average of 22.3. However, PFE has a lower net margin of 15.6%, ttm, as compared to the average of 16.4%, ttm. PFE generates lower ROE of 11.3 (vs. the average of 17.2). PFE's P/E of 21.0 is higher than the industry average of 17.9 and higher than PFE's 5 year average of 17.2. PFE's forward P/E of 10.4 is lower than S&P 500's average of 14.0.
Technically, the MACD (12, 26, 9) indicator is showing a bearish trend with diverging MACD difference. RSI (14) is declining and showing a reducing buying momentum at 54.40. PFE is currently trading above its 50-day MA of $25.89 and 200-day MA of $23.82, as seen from the chart below.
In short, TEVA and PFE are two top quality healthcare stocks for long-term holding. Buy on dip should not disappoint investors in the long run. TEVA also offers an annual dividend yield of 2.66% and PFE's 3.57% annual dividend yield is attractive, too.
Note: All prices are quoted from the closing of February 8, 2013. Investors and traders are recommended to do their own due diligence and research before making any trading/investing decisions.
Disclosure: I am long TEVA.
Additional disclosure: May initiate a position in PFE