Israel's most profitable company on Wall Street in 2023 is somewhat surprising. Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) recorded a non-GAAP net profit of $1.76 billion in the first nine month of 2023 and according to forecasts will end the year with non-GAAP net profit of between $2.55 billion and $2.9 billion.
At the same time, two things must be remembered. Firstly, it is not about the accounting profit (GAAP, according to the generally accepted accounting rules in the US) but about the non-GAAP profit, that is, deducting various accounting items. In the case of Teva, there is a big gap between the two types of profit. For example, in the first three quarters of the year, according to GAAP accounting rules, the company recorded a net loss of almost $1 billion. The reason for the gap between a loss of almost $1 billion and a profit of almost $2 billion is a series of clauses that in Teva's case make a big difference. Among items not included in non-GAAP calculations are value reductions of some assets, costs of legal proceedings and more, which for Teva add up to huge sums.
Oppenheimer senior equity analyst Sergey Vastchenok clarifies the difference between the company with the highest profit and the company with highest profitability. "Teva has the highest revenue turnover of Israeli companies traded on Wall Street," he explains. "It sells $15 billion annually, while for example ICL sells $7.5 billion and Check Point sells $2.4 billion. So its clear that with revenue of $15 billion, the absolute profit will be higher even if the level of profitability is relatively lower."
Vastchenok points out that Israeli companies with higher profitability, looking at EBITDA (earnings before interest, taxes, depreciation and amortization) include: cybersecurity company Check Point (TASE: CHKP), medical aesthetics company Inmode (Nasdaq: INMD) and autonomous driving technologies company Mobileye (Nasdaq: MBLY). Teva's adjusted EBITDA is expected to amount to $4.5-4.9 billion in 2023, which at its mid-forecast is 31% of revenue, similar to 2022.
Will Teva return to growth
However, there is a question mark over Teva's high revenue. Over the last five years the company's revenue has consistently shrunk and this year the company, formerly considered "the share of the nation," has returned to growth.
What has weighed on Teva's revenue in recent years was the biggest acquisition in its history in 2016, when it bought generic drug company Actavis for almost $40 billion. Instead of growth, Teva was burdened with a huge debt. The loan the company took to finance the deal forced the new CEO Kare Shultz, to impose an aggressive streamlining program that included many layoffs. About a year ago, Schultz stepped down and new CEO Richard Francis presented a strategic plan aimed at leading Teva to growth. This year we will find out if he has succeeded in the task.
Published by Globes, Israel business news - en.globes.co.il - on December 25, 2023.
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