Despite Share Price Stagnation, Great Value Remains in Teva (TEVA, CEPH)

Teva Pharmaceutical Industries Limited (NASDAQ: TEVA) now has its earnings out of the way and analysts have had enough time to chime in with their opinions on whether or not the stock should be bought or sold.  Teva was picked as our only healthcare or drug stock among our “ten stocks to own for the next decade” in recent months.

The generic and brand name pharmaceutical outfit released second-quarter earnings for the June quarter of $1.10 per share this week.  This only narrowly beat consensus estimates of $1.09 per share from Thomson Reuters.  Revenues came in at $4.2 billion to be mostly in line with consensus estimates of $4.24 billion.  While we care about earnings, we want to look beyond the impact of a single quarter.

Shares have failed to budge, in part because of the drag from the company still trying to close its $6.8 billion buyout of Cephalon Inc. (NASDAQ: CEPH) that is due to close in the third quarter of this year.  Before the effects of Cephalon, the 2011 guidance was previously put at $4.90 to $5.20 EPS and the 21012 target was put at $5.30 to $5.86 EPS.

If we just use the mid-point of earnings and blend the results with estimates, Teva is just too cheap of a stock.  While the major pharmaceutical sector is facing a major patent cliff of key drug expirations, Teva stands to benefit from added business over the coming decade.  It is hard to imagine that sales of generic drugs have remained weak, but that seems to be the case in America.  This just does not seem possible quarter after quarter.

The stock trades at a mere 9.2-times expected 2011 earnings and only about 8.4-times expected 2012 earnings. Shares recently closed at $46.79 before earnings and went to $45.75 after earnings, and shares are back up to $46.76 today.  The company’s 52-week range is $44.86 to $57.08.

Another boost to Teva holders is that analysts still have a $62.50 price target more or less, implying upside of about 33% if that target is reached.  The highest analyst target is $70.00.  Where this gets more interesting is that shares peaked more than a year ago in early 2010 north of $64.00 per share.

Calling an exact bottom is never easy and in fact it may even be a fool’s game to try.  As long as the market is not going to roll over even for the defensive stocks, let’s just say that Teva has a lot of room for shareholder growth.  With a dividend yield of less than 2%, the company also has ample room to raise its dividend.

JON C. OGG