Teva Pharmaceuticals (NYSE:TEVA) looks like a value trap. The stock missed both the top-end and low-end and slashed guidance. Its quarterly revenue of $5.61 billion against its ~ $12 billion market capitalization looks ridiculous. But markets are weighing on many worries for Teva.
Teva’s stock will face more selling pressure when Allergan (NYSE:AGN) sells its 100 million shares. Still, valuations are highly favorable. The stock trades at two times book, half-times sales, and five times GAAP earnings.
Unfortunately, the company still sits on $34.7 billion in debt. It cut its debt by a mere $600 million. Looking ahead, Teva has signed contracts for non-core assets that will generate $2.3 billion in net proceeds. So by the end of the year, the debt should fall by at least that much.
Cash flow projection
Teva generated cash flow from operations of $1.1 billion in the third quarter.
For 2017, it cut its cash flow projection from the mid-$4 billion ($4.40 - $4.60) down to $3.15 - $3.3 billion for the full-year. Generic drug pricing is putting pressure on profit margins. This headwind continued in the last (third) quarter and will continue.
Biggest Risk: Copax competition
Copaxone now faces competition. Whereas the drug generated $1 billion in revenue, down 7%, and due to $55 million in higher managed care rebate accruals, Mylan’s (NASDAQ: MYL) shook up the market. Mylan came in the market with a lower price and higher discount than Teva. Investors need to watch how Copaxone sales find a new equilibrium in the marketplace.
