After reaching all-time highs in early 2010, Teva Pharma (TEVA) has struggled, falling to below $40 a share for the first time since 2007 before rebounding to its current level of $45. However, it seems like the market is underestimating the growth of the generic market and Teva's standing is one of the big dominant players in the industry. Furthermore, the two of the valuation metrics are suggesting that the stock is undervalued. Analysts suggest that the stock has upside of 17%, but considering Teva has a market cap of nearly $40 billion, this is some decent upside in the stock. Below is an in depth look at the valuation metrics and stock chart.
Valuation: Teva Pharma's trailing 5 year valuation metrics suggest that the stock is undervalued as all of the metrics are below their respective 5 year averages. Teva Pharma's current P/B ratio is 1.8 and it has averaged 2.4 over the past 5 years with a high of 3 and low of 1.4. Teva Pharma's current P/S ratio is 2.2 and it has averaged 3.3 over the past 5 years with a high of 4.1 and low of 1.9. Teva Pharma's current P/E ratio is 14.6 and it has averaged 25.8 over the past 5 years with a high of 59.1 and low of 11.1.
Price Target: The consensus price target for the analysts who follow Teva Pharma is $53. That is upside of 17% from today's stock price of $45.06 and suggests that the stock is fairly valued at these levels.
Forward Valuation: Teva Pharma is currently trading at about $45 a share with analysts expecting EPS of $6.05 next year, an earnings increase of 8% y/y, for a forward P/E ratio of 7.4. Taking a look at the company's publically traded comparisons will give us a better idea of the stock's relative valuation. Mylan (MYL) is currently trading at about $23 a share with analysts expecting EPS of $2.67 next year, an earnings increase of 10% y/y, for a forward P/E ratio of 8.5. Perrigo (PRGO) is currently trading at about $106 a share with analysts expecting EPS of $5.42 next year, an earnings increase of 13% y/y, for a forward P/E ratio of 19.5. Watson Pharma (WPI) is currently trading at about $68 a share with analysts expecting EPS of $6.05 next year, an earnings increase of 5% y/y, for a forward P/E ratio of 11.2. The mean forward P/E of Teva Pharma's competitors is 13 which suggests that Teva Pharma is undervalued relative to its publically traded competitors.
Earnings Estimates: Teva Pharma has beat EPS estimates 3 times in the past 4 quarters. The company's EPS figures have come in between 0 cents and 3 cents from consensus estimates or about 0% to 2.5% from analyst estimates. The company's earnings come been relatively close to consensus estimates which suggests that analysts are good at projecting the company's results and share upside from earnings surprises will be limited.
Price Action: Teva Pharma is down 11.3% over the past year, underperforming the S&P 500, which is up 6.8%. Looking at the technicals, the stock is currently above its 50 day moving average, which sits at $44.50 and above its 200 day moving average, which sits at $42.05.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.