Even though Teva Pharmaceuticals (NYSE: TEVA) dipped from $24 to $22 after reporting Q2 results, the company is on track with its turnaround plan. Those holding the stock for the long-term will get a greater reward.
Teva lost $240 million as revenue fell 17.8% to $4.7 billion. The company guided revenue in the range of $18.5B to $19B. Non-GAAP EPS is $2.55 - $2.80, above the previous range of $2.40 - $2.65. The markets responded negatively to the results, due to the non-cash charges that resulted in GAAP loss. Generic and Copaxone pressures are nothing new. More importantly, the balance sheet is improving.
The company has short-term debts covered, a restructuring plan that will cut costs, and improving profits and revenue from Europe. Net debt fell a convincing $1 billion, cutting total debt to $28.4 billion. Along with the decent non-GAAP guidance, cash flow will come out in the range of $3.2 billion and $3.4 billion.
Headwind
Copaxone is a negative headwind. Already, Glatopa 40-mg has modest market share at 15% – 17% for Mylan (NASDAQ: MYL). Still, Teva expects turnover for the product will exceed $2 billion in the U.S. this year. But longer-term, the generic competition will hurt results.
Takeaway
Teva is a compelling long-term value play for investors at a 7.8x forward P/E. The dip may prove temporary as the company continues to cut debt and find growth in products like Austedo (a drug treating Huntington’s disease).
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