Contrarian Value Ideas

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Teva - >>> 3 Drug Stocks With Unimaginably Low P/E Ratios


by Sean Williams

Motley Fool

July 17, 2019


https://finance.yahoo.com/news/3-drug-stocks-unimaginably-low-112100045.html


Teva Pharmaceutical Industries: 2019 P/E of 3.9


More than likely the best-known drug stock on this list is Teva Pharmaceutical Industries (NYSE: TEVA), namely because it's been in the news a lot over the past two years, and not always for the best reasons.

In sum -- take a deep breath, because you're going to need it -- Teva has eliminated its dividend, reduced its outlook multiple times, been sued by 44 states over sales of opioid drugs, contended with generic-drug price weakness, seen its top-selling multiple sclerosis drug face generic competition, and settled a bribery scandal with the Justice Department that led to top executive turnover.

The icing atop all of this is that Teva, the largest generic-drug producer in the world, paid far too much to acquire Actavis Generics from Allergan and wound up saddled with around $35 billion in debt. This left Teva with little financial flexibility to grow its business once generic pricing weakness crept into the picture.

But of the three unimaginably "cheap" drug stocks listed here, Teva is the one with the real prospect of a long-term rebound. Teva CEO Kare Schultz specializes in turnarounds, and he's overseen the reduction of $8 billion in net debt in two years' time. He's also expected to have trimmed $3 billion in annual expenses off Teva's books by the end of this year -- that's about 16% of what it was spending per year before this mess began. When also added to the more than $1 billion Teva saves a year by having eliminated its dividend, the company's cost structure is well under control, and its ability to generate substantial amounts of cash flow isn't in question.

Ultimately, I view Teva as an excellent play for an aging global population. With longevity increasing in most countries, access to medical care improving, and countries like the U.S. fighting back against high-priced brand-name drug, Teva, being the largest generic-drug producer in the world, should see a significant increase in long-term pricing power.

This won't be an overnight turnaround, but Teva's P/E ratio of 3.9 genuinely does look to be a bargain.

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