TEVA ($TEVA) — FY21 Update

Price: $7.80 Market Cap: $8.6bn Valuation: 6x EBITDA / 4.4x FCF Category: General

FY21 Review

Revenue fell 8% in Q4. Earnings were up 13% from $0.68 to $0.77 per share.

TEVA continues the massive deleveraging journey following a large ill-timed acquisition several years ago — net debt down to $20.9bn in FY21 (from $23.7bn FY20)
Looking at a breakdown of revenue by product line:
  • Generics (global) are 57% of sales and NA is 24% of sales alone
  • There is one specialy drug off-patent with declining sales (Copaxone) and 2 new specialty drugs in growth mode (Austedo and Ajovy).
    • Copaxone was $1.3bn FY20 sales and fell 25% to $1bn in FY21 (as expected) — headwinds should get smaller as it becomes smaller portion of total sales
    • Ajovy/Austedo — grew 36% to $1.1bn in FY21
  • NA generics were a problem in FY21 — sales down 6% and this makes up ~24% of total revenue
2022 guidance
  • 25% growth in Ajovy/Austedo specialty drugs (9% of FY22 sales) + 15% decline in Copaxone (5.4% of FY22 sales)
  • Flattish EPS — $2.40-2.60 vs. $2.58 in FY21
  • Flat-to-down FCF and EBITDA

Thoughts & Valuation

Teva is making good progress on their multi-year plan of getting net debt down to 3x EBITDA, operating margins to 28%, and FCF conversion to 80% of net earnings.

Multiples continue to compress for generics peers. Teva is well below multi-year averages (even after getting leverage down a significant amount)


After reading a few sell-side reports, the bear case around Teva centers on the potential opiod liabilities and continued pressure on the generics business.

Management sets a significantly more confident tone around cash flow visibility over the next few years and they’ve been holding margins despite the revenue declines.


CEO Kare Schultz talked about capital returns to shareholders coming into the picture after they hit the leverage target. With a 20-25% FCF yield, that could be substantial. On top of that, Teva trades at about the lowest valuation level in its history despite good progress on the balance sheet.

Using the historic average 7x EBITDA multiple on $4.85bn 2022 EBITDA and an ending net debt balance of $19.1bn = $14.8bn equity value or $13.30 per share price target.