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This article was originally published on Simply Wall St News
Teva Pharmaceutical Industries Limited ( NYSE:TEVA ) is a pretty big company with a market capitalization of US$9.8b and the world's largest generic pharmaceutical manufacturer.
We will go through some history of Teva, and find out what is the future potential, as well as look at the general sentiment from stockholders.
One way in which we assess the quality of a company is to look at its ownership structure. This allows us to see which shareholder groups see the most potential in Teva.
Teva was founded in 1935 and has a long history in the pharmaceutical industry. With a company of that size and age, we should expect the institutions to be the predominant shareholder group.
We can zoom in on the different ownership groups, to learn more about Teva Pharmaceutical Industries.
Taking a look at our data on the ownership groups (below), it seems that institutional investors have bought into the company and own the majority of shares. The institutions might have a hard time making large investments in TEVA, as the company has been on a downward long-term trend regarding the stock price. This may be a reason why some institutions have moved away from TEVA, as it is hard finding a bottom of a waning stock and even harder convincing clients to stay on-board a money losing investment.
The question we want to ask is, has TEVA stabilized, and what can we say about the future of the stock?
In that regard, we are going to look at 2 factors:
It's therefore worth looking at Teva Pharmaceutical Industries' earnings history below.
Revenue is going to be pretty stable as the company is serving a substantial portion of a mature market in the generic pharmaceuticals segment. However, the chart above reveals a key element important for investors. Teva is on track to become profitable again. In fact, it already has a positive cash flow from operations, but is probably using it to stabilize the company or make debt repayments.
Their long term debt is another important issue, while new debt gives a company fresh capital in order to finance projects, old debt is nothing more than a burden on financials, and it is hard for older companies to find projects that make a bigger return than their cost of capital. In other words, older companies can get more debt, but it is harder for them to make a profit out of it.
That is why the US$24.9b in debt is a huge weight on the value of Teva for its shareholders. Looking at Teva's cashflows, it could easily become a US$30b market cap company if it got debt on a more manageable level.
Management seems to have the right idea in reducing debt on the long run. Even if the company does not grow more than the economy in the future, this will both de-risk the company and help bring in cash for shareholders.
There is one additional large risk factor going forward. Teva is implied in the opioid epidemic in the USA, and is currently negotiating a settlement. We can clearly see that a large negative court ruling can drastically shake up the capital structure of Teva, and might leave both sides with pennies. On the other hand, Teva's CEO is offering to manufacture pharmaceuticals for the USA as a form of settlement, which might benefit both sides.
On a side note, it seems Teva is not currently engaging in dividend payments. This is not necessarily a bad thing, because the company can also return cash via buybacks - which is less risky, since dividends behave like a fixed expense.
Teva has been in decline for the past few years, but may have finally started stabilizing its value.
The major risk factors for the company are the large accumulated debt and a settlement with the US court.
Management seems to be moving in the right direction in reducing debt and negotiating with the US.
The largest stakeholders are institutions which have been reducing their ownership in the previous years. This might give shareholders the opportunity to enter when market sentiment is at a low.
It's always worth thinking about the different groups who own shares in a company. But to understand Teva Pharmaceutical Industries better, we need to consider many other factors. For example, we've discovered 1 warning sign for Teva Pharmaceutical Industries that you should be aware of before investing here.
Ultimately the future is most important . You can access this free report on analyst forecasts for the company .
NB: Figures in this article are calculated using data from the last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. This may not be consistent with full year annual report figures.
Simply Wall St analyst Goran Damchevski and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.