Teva Pharmacare Industries

CJ Wei 4/19/2011 Recommend: BUY Target Price: $58.60

Key Stats and Pricing

Criteria Criteria

Current Price (4/20/2011)

$49.15 Operating Margins 58.48

P/E 13.58 Net Profit Margin 20.86

Market Cap $46.77B ROE 16.18

Dividend 1.70% Return on Average Assets

9.43

Teva’s current price provides an attractive entry opportunity

Presentation Overview

Recommendation

Investment Thesis

Research

Valuation

Risks

Recommendation

Buy TEVA at Current Market

Price

Provides exposure to healthcare and emerging markets

Value, Growth, and Yield potential

Teva Pharmaceutical is a strong long-term investment with an attractive current price

Investment Thesis

Leading position in pharmaceutical industry, strategically positioned in attractive markets

Attractive growth prospects, yields, unique value Low risk, defense stock

Hybrid of generic and innovative pharmaceutical products allow stable cash flows

Compliments our overweight healthcare perspective and diversification strategy

Why do I like Teva Pharmaceuticals?

Teva PharmaceuticalsTeva Pharmaceutical’s product offerings are divided into three categories

Generic Products Branded Products Animal Health

• Copaxone• Azilect• Speciality

Respiratory Products• Women’s Health• Biopharmaceuticals

and Biosimilars

• Generic animal pharmaceuticals

• Market proprietary dermatological and nutraceutical veterinary products in the US

• Sold at prices below originator pharmaceuticals

• Global reach: North America, Europe, International Markets

Generic Drug Industry

Expiring Patents

Growing Middle Class

Aging Population

Emerging Market Growth

Key drivers that contribute to a positive revenue outlook

Positive Revenue Outlook

Investment Thesis I:Global Muscle and ReachTeva’s global operations positions the company to capture generic pharmaceutical growth

Leading Position

• Teva Pharmaceuticals is the leading generic drug company in the US

Global Reach

• North America, Europe, Latin America, Asia, and Israel with operations in more than 60 countries

Historical Growth

• Historical growth rate of 28% a year, 5 times the growth rate of the S&P of 5.2%

Investment Thesis II:Growth, Yield, ValueGrowth potential shown by recent acquisitions and product launches

Launches in the U.S. of five significant new generic products

Strategic Expansion Strategy

Barr Pharma in 2008 Recent acquisition of Ratiopharm, Laboratoire Theramex, Corporacion Infarmasa

P&G Joint VentureStrong cash position

Investment Thesis II:Growth, Yield, ValueHealth care reform should increase the demand for cheaper drugs

Impact

big

Pharmaceuticals

Marketing reform to

brand-name drugs

Limits on “pay-

for-delay”

Investment Thesis II:Growth, Yield, Value

• Dividend yield of 1.77%, growing at an 25% annual clip• 15 dividend increases in the last 5 years

Generous dividend payments

1994

• ½ cent per share / quarter

2000

• 1 ½ cent per share / quarter

2007

• 10 cents per share / quarter

Currently

• 18 cents per share / quarter

• Currently trading at 11.9 times current year earnings

• Discount of 15.2 times earning level that

Investment Thesis II:Growth, Yield, Value

Nearing lower end of 52-week trading range

52-week trading range: 46.99 - 62.82

Investment Thesis III:Low Risk InvestmentLow risk going into summer months

Low Beta at .20 Defensive StockDiverse Product

Offering Portfolio

Managed well financiallyLow leverageStrong and diverse pipelineHealth care stability due to inelastic demand

Case Study 1: September 2000 through April 2002 Teva demonstrates price stability in turmoil

• September 2000 to April 2002• Teva stock declined in price only about 26%• NASDAQ declined 67%

Case Study 2: February through October 2008Teva demonstrates price stability in turmoil

• February through October 2008• Teva stock declined in price only about 22%• NASDAQ declined 47%

Investment Thesis IV:MSF + Reynolds Strategy

Health care reform should increase the demand for cheaper drugs

Neither funds have positions in a brand or generic pharmaceutical

Low volatility in uncertain summer monthsHealthcare unintentionally underweight

Additional Company Info

Management

“Thanks to the expertise of our integration teams, we will be able to hit the ground running terms of maximizing our new scale and seizing the opportunities for further growth that our leadership position brings us.”

Superior Management team that aims to maximize value for shareholders

Average Tenure 12.3 Years

Average Age 65.3

Executives Members 13

CEO Shlomo Yanai

Competitors Analysis

ROA: 9.43%ROE: 16.28%Prof. Marg: 8.75%Op. Marg: 23.38%

Teva Pharma (TEVA)

ROA: 3.13%ROE: 5.85%Net Prof. Marg: 5.14%Op. Marg: 8.55%

Watson Pharma (WPI)

Superior Management team that aims to maximize value for shareholders

ROA: 3.09%ROE: 6.64%Net Prof. Marg: 6.34%Op. Marg: 13.34%

Mylan Inc (MYL)

Key FinancialsRevenue and positive key financials over industry

• From 2009 to 2010, Teva increased sales 16%, earnings per share 35%, and cash 23%

• On pace to nearly double sales by 2015

Stat TEVA Industry

P/E Ratio 13.28 24.27

Beta .20 .62

Sales – 5yr 25.15 8.15

D/E Ratio 31.35 21.15

Valuation• Target Price: $58.6• WACC: 12%• Terminal Growth: 2%• TVM of FCF: 10x

• Catalyst• Recent company acquisitions• Generic pharmaceutical

growth• Slowed revenue growth due

to competition• Time Horizon • Approximately 1 Year

DCF Analysis

$58.6

Investment Management ProfessionalsCurrently held by many hedge fund managers including Paulson, Soros, Buffet

Risks

Success depends on Teva’s ability to commercialize additional pharmaceutical products

Revenue and profits decline easily in generic drug arena Sales of branded products such as Copaxone could be

adversely affected when patent expires Acquisitions diverse risks

Health care reform should increase the demand for cheaper drugs

Summary

The constant demand for pharmaceutical products should provide a safe investment for summer months: Dominant player in pharmaceutical industry Growth, value, yield Compliments MSF and Reynolds healthcare strategy

BUY recommendation at market price

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