Excellence Nessuah has raised its price target for Israeli generic pharmaceuticals company Teva Pharmaceutical Industries Ltd. (Nasdaq: TEVA ; TASE: TEVA) to $48. This compares with a current market price of $40.17, at which Teva has a market cap of $25.11 billion.
Analyst Richard Gussow says that the recently-completed $8.8 billion acquisition of Miami-based Ivax will further strengthen Teva's already advantageous position in a market about to enjoy something of a boom, with a high number of drug patents close to expiry, and yet Teva is not traded at a premium.
"Developments in the industry in general and at the company in particular further bolster Teva’s investment case, and we reiterate our BUY recommendation," Gussow writes.
According to Gussow, 2006 and 2007 should be banner years for the generic pharmaceuticals sector. A strong wave of drugs will be coming off-patent following a dearth of patent expiries in 2005. "As a result, the stronger expected growth in the industry has led to a re-rating of the sector, which has seen the average 2006 p/e ratio rise from just over 19x to nearly 21x in the last 6 months," he writes.
"Teva was already in a superior position to leverage the high number of patent expiries, and the addition of Ivax further accentuates this advantage. The stock should therefore be trading at a premium, and we believe it is an anomaly for Teva to be trading at the sector average 2006 p/e ratio of 21x, despite its significantly higher growth potential."
Gussow says that a clearer measure of how the shares are undervalued can be seen in Teva’s 2006 PEG (price/earnings ratio to growth rate) of only 1.3x, compared to the sector average of 1.7x.
Published by Globes [online], Israel business news - www.globes.co.il - on February 15, 2006
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