Tuesday, 8 January 2013

A Look at Teva


My first purchase of Teva shares occurred in May 2011 (90 @ $48.80). Since then, I bought more in August 2011 (90 @ $39.22) and in June 2012 (115 @ $39.55). The stock price has tanked ever since I started buying, and I believe it is attractive at current levels.

Average Dividend Yield Analysis*

TEVA
Year
High Price
Low Price
1Q
div.
2Q
div.
3Q
div.
4Q
div.
Annual Dividend
High Yield
Low Yield
2005
$45.91
$26.78
$0.0559
$0.0559
$0.0543
$0.0519
$0.218
0.81%
0.47%
2006
$44.71
$29.22
$0.0607
$0.0626
$0.0643
$0.0657
$0.253
0.87%
0.57%
2007
$47.14
$30.81
$0.0787
$0.0833
$0.0802
$0.084
$0.326
1.06%
0.69%
2008
$50.00
$35.89
$0.1017
$0.1126
$0.1042
$0.0931
$0.412
1.15%
0.82%
2009
$56.88
$41.05
$0.112
$0.1203
$0.1248
$0.1254
$0.483
1.18%
0.85%
2010
$64.95
$46.99
$0.164
$0.1632
$0.167
$0.173
$0.667
1.42%
1.03%
2011
$57.08
$35.00
$0.2168
$0.1999
$0.21
$0.2149
$0.842
2.40%
1.47%
2012
$46.65
$36.63
$0.2630
$0.2613
$0.248
$0.255
$1.028
2.81%
2.20%
Stock prices and dividends are per calendar year
8y ave
1.46%
1.01%
Dividends are recorded in the quarter they were paid
5y ave
1.79%
1.28%

3y ave
2.21%
1.57%

5y
$57.39
$80.58







3y
$46.50
$65.53






Super Cheap
$36.63

The dividends in the table are before dividend withholding tax.

The table shows the 3 year average dividend yield to be 2.21% ((1.42% + 2.40% + 2.81%)/3). I use the numbers in the “High Yield” column for obvious reasons.

Using the current annual dividend of $1.028, one would have to pay $46.50 for a 2.21% yield.

Buying the stock at its low in 2012 would have earned you an initial yield of 2.81%. Using the current dividend, that corresponds to a stock price of $36.63 today (see “super cheap” price in the table above).

Graham Price

Teva’s 2009, 2010 and 2011 EPS were $2.23, $3.66 and $3.09. 3Y Ave EPS = $2.99.
Teva’s BV is $26.42.
Graham Price = SQRT (3Y Ave EPS * BV * 22.5) = $42.18

If you use 12-month forward EPS of about $5, The Graham Price jumps to $48.25.

Cyclically Adjusted Price to Earnings Ratio

Teva’s 10Y Ave EPS = $1.69
CAPE = Stock Price / 10Y Ave EPS = $38.09 / $1.69 = 22.58
A CAPE below 20 is good.

If you use 12-month forward EPS, the CAPE is 18.04

Conclusion

Teva increased EPS from $0.51 in 2001 to $3.09 in 2011. That’s an increase of 6 times over 11 years.

Based on my three metrics, the stock price of Teva is attractive, as long as 2013 EPS reach $5, which I believe it will.

The company has not yet announced it’s 2013 dividend increase, but if it’s anything like last year’s 22%, I’ll be one happy camper! However, one drawback of Teva is the dividend withholding tax, which amounted to an average of 12% and 21.7% in 2011 and 2012, respectively.


*My method is not perfect as the stocks low price may have occurred before the annual dividend increase.

2 comments:

  1. I have looked at TEVA from time to time and I agree that it trades at an attractive valuation. For whatever reason, I just have not been sufficiently compelled to buy it, but I would not mind adding another healthcare stock to my portfolio.

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    Replies
    1. I think Teva will do well, eventually. I recently read that 3 to 4 million people turn 65 each year in the USA alone. I like the healthcare sector, but I don't like the risks. I bought Teva because they're into generics. I would like my next healthcare stock to be related to medical supplies (as opposed to drugs), such as BDX or SYK.

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