When a company whose stock has been challenged comes out and lowers guidance both on a revenue and earnings basis, and the stock goes up on the news, investors should clue in. This usually means that the bad news or worse is fully priced into the stock and quite often marks the bottom for the equity. Teva Pharmaceuticals (TEVA) is the company in question and given its low valuation, it is an ideal time to start to bottom fish in these beaten down shares.
Revised guidance highlights from TEVA:
The company now expects revenue of between $20B and $21B, down from previous guidance of $22B for FY2012.
Teva also expects earnings to be in the range of $5.30 to $5.40 a share for the fiscal year, down from previous guidance of $5.48 to $5.68 a share.
It expects Copaxone sales to tally $3.8B for year and it might divest non-core assets.
4 reasons TEVA is a deep value stock at $39 a share:
- In addition to rising on "bad" news today, Wells Fargo upgraded competitor Watson Pharmaceutical (WPI) to "outperform" this morning which should bode well for the overall generic drug sector.
- TEVA yields 2%, is trading at just over 7 times revised EPS guidance for FY2012 and has a five year projected PEG ratio of just over 1 (1.04).
- The stock is selling at the very bottom of its five year valuation range based on P/E, P/B, P/S and P/CF.
- TEVA has long term technical support in the $36 to $39 range (See Chart).
Disclosure: I am long TEVA.