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By J. Royden Ward

Two companies that have demonstrated steady, reliable growth in the past and boast talented management teams with visionary business plans are Teva Pharmaceutical and Walgreen.

Teva Pharmaceutical (NYSE:TEVA) is based in Israel and develops, makes and sells generic and proprietary-branded (store brand) drugs. The company is one of the largest generic drug producing companies in the world and, in addition, sells active ingredients to other pharmaceutical companies.

TEVA purchased U.S.-based Barr Pharmaceuticals for $7.5 billion in 2008. Barr has increased Teva’s generic drug sales significantly in the U.S. and in parts of Europe.

TEVA will acquire Ratiopharm, based in Germany, for $4.8 billion in 2010. The purchase will make TEVA the leading generic drug maker in Europe. The Ratiopharm acquisition will provide major cost savings and produce significantly higher profits for TEVA.

TEVA recently won two patent cases, which will allow the company to continue to develop and sell two important generic drugs.

Teva’s generic drug business is growing more rapidly worldwide because consumers are opting for the lower priced generics. President Obama’s healthcare plan favors the use of low-priced generic drugs.

Teva’s product pipeline is very strong, with 216 new drug applications waiting for FDA approval, several of which could become blockbusters. Sales rose 21% during the first half of 2009, and EPS increased 12%. We forecast EPS growth of 26% for the next 12-month period with 17% growth thereafter.

Teva’s sales and earnings have continued to grow despite the global recession. Sales, earnings, and dividends have increased every year since TEVA’s initial public offering in 2000. The company’s aggressive acquisition and product development programs are driving remarkable sales and earnings growth. Sales increased 24% and earnings per share jumped 26% during the past 12 months. Our forecast for the next 12 months includes sales growth of 20% and earnings per share growth of 30%.

TEVA shares are clearly undervalued at 13.0 times 12-month forward EPS. The dividend has been raised every year since 2000 and now provides a 1.2% yield.

Walgreen (WAG), founded in 1901, is the second largest drug store retailer in the U.S. In addition to 7,000 drug stores, the company operates 680 health clinics within existing stores and on employer work sites. WAG’s clinics offer primary and acute care, pharmacy and disease management services, and health and fitness advice.

Walgreen typically adds new stores and renovates old stores, but occasionally acquires smaller competitors if the price is right. The company’s strategy has led to steady, reliable growth for decades.

Walgreen recently acquired Duane Reade, based in New York City, for $1.1 billion cash. Reade will add significant sales and earnings and enhance WAG’s future growth prospects.

Same store sales increased by 1.6% in March compared to an increase of 0.6% in February and a decrease of 0.6% in January. New management is renovating existing stores, cutting operating costs, and improving customer service. We foresee sales and EPS growth of 7% and 15% respectively for the next 12-month period followed by 14% EPS growth in future years. The dividend yield is 1.5% and growing.

Walgreen shares are undervalued at 14.6 times next 12-month EPS. WAG’s stock price increased just 28% during the past decade while earnings and dividends more than tripled. We believe the company’s stellar performance will now be rewarded and push WAG shares to our target sell price within the next one to two years.

Disclosure: None

Source: Teva and Walgreen: Two Solid Value Companies