The Oracle of Omaha Goes Value Shopping in the Value Pharmaceutical Bin with Teva (TEVA)
With countless missteps, U.S. generics business weakness, Copaxone generic competition, and an ongoing restructuring, Teva Pharma (NYSE: TEVA) has been labeled your classic "dog" stock for the past couple of years. That all changed yesterday when Warren Buffett's Berkshire Hathaway shocked Wall Street by disclosing in their December-quarter 13F that they had accumulated a new, nearly 19 million share position in the Isreal-based pharmaceutical company.
While it is unclear if the Oracle himself pulled the trigger on the trade, all of Berkshire's lieutenants try to stick to his proven value investing philosophies, including these Buffett classics:
- 'Rule No. 1: Never lose money. Rule No. 2: Never forget rule No.1'
- "Price is what you pay. Value is what you get."
- "Our favorite holding period is forever"
- "I don't look to jump over 7-foot bars: I look around for 1-foot bars that I can step over."
Commenting on the news, Citi analyst Liav Abraham said while Berkshire’s investment does not alleviate near-term issues, "it is nonetheless supportive of our thesis that the company is taking the right steps to execute on a successful turnaround and generate sufficient cash flow to de-lever at a more rapid pace than anticipated by the Street."
Although the near-term pressure on the top-line is expected to continue, Abraham highlights that Teva's core generics franchise benefits from scale, durability, and the ability to develop complex generic drugs. In addition, they believe management’s focus on cost cuts and business rationalization set the stage for growth and margin improvement over longer-term.
"During recent investor meetings that we hosted for management, the CEO commented on a "simple and boring" story going forward, focused on slow and steady execution, without material M&A or inorganic moves over the foreseeable future," the analsyt further commented. "Management also commented on the potential for meaningful margin expansion over time (potentially 10% over a 10 year period)."
Buffett's Teva stake is all the more interesting given recent news that Berkshire teamed up with Amazon and JPMorgan to lower healthcare cost for their employees and potentially other U.S. workers.
StreetInsider Premium first published a variation of this article at 4:09PM ET on 02/14. Try StreetInsider Premium for two weeks free and get news and research before the market moves. Join Here.