In this article, we will explore a fundamental analysis of two prominent pharmaceutical companies, Pfizer Inc. (PFE) and Teva Pharmaceutical Industries Limited (TEVA). This analysis reveals that TEVA stands out as the superior choice for both growth and value investment.

The pharmaceutical industry's strong performance is driven by robust demand. The industry’s growth is boosted by innovations like cell and gene therapy, mRNA vaccine technology, changing supply chains, and evolving product offerings.

The global pharmaceutical market revenue is projected to reach $1.16 trillion this year.

Additionally, the rising incidence of life-threatening diseases, like cancer and rare conditions, necessitate precision medicine. Also, technological progress and developments in cell biology further propel the market.

The Precision Medicine Market is expected to grow from $77.02 billion this year to $99.24 billion by 2028 at a CAGR of 5.2%. Both PFE and TEVA are expected to thrive in the upcoming months.

TEVA is a clear winner in terms of price performance. PFE has declined 1.5% over the past month, while TEVA returned 14.6%. Also, PFE’s 4.9% decline over the past three months compares to TEVA’s 22.6% returns. Moreover, in terms of year-to-date performance, TEVA is the clear winner with 6.9% gains versus PFE’s 28.1% decline.

Given below are the reasons why I think TEVA is a better pick:

Latest Developments

On August 23, PFE announced that the U.S. FDA had accepted and granted Priority Review for the companies' supplemental New Drug Application (sNDA) for XTANDI® (enzalutamide) for the treatment of patients with non-metastatic castration-sensitive prostate cancer with high-risk biochemical recurrence (BCR).

Conversely, on July 24, TEVA’s U.S. affiliate Teva Pharmaceuticals, Inc. and Alvotech, a global biotech company specializing in the development and manufacture of biosimilar medicines for patients worldwide, announced that they had agreed to expand their existing strategic partnership agreement.

Teva will also acquire subordinated convertible bonds to be issued by Alvotech.

Recent Financial Results

PFE’s revenues declined 54% year-over-year to $12.73 billion for the fiscal second quarter that ended June 30, 2023. The company’s adjusted income and EPS decreased 67% year-over-year to $3.84 billion and $0.67.

On the contrary, during the fiscal second quarter that ended June 30, 2023, TEVA’s net revenues increased 2.4% year-over-year to $3.88 billion. Its gross profit came in at $1.80 billion, up marginally year-over-year. The company’s non-GAAP net income attributable to TEVA and non-GAAP EPS amounted to $629 million and $0.56.

Past and Expected Financial Performance

PFE’s revenue grew at a CAGR of 30.9% over the past three years. However, analysts expect PFE’s revenue to decline 34.4% in the current quarter, 19.1% in the next quarter, and 33.9% in the current year. Its EPS is expected to decrease by 65.6% in the current quarter, 32.7% in the next quarter, and 49.8% in the current year.

On the other hand, TEVA’s levered cash flow grew at a CAGR of 10.1% over the past three years. Analysts expect TEVA’s EPS to rise 4.2% in the current quarter and 7.7% in the next year. Its revenue is expected to increase 4.2% in the current quarter, marginally in the next quarter and 1.8% in the current year.

Valuation

In terms of forward EV/Sales, TEVA is currently trading at 1.97x, lower than PFE, which is currently trading at 3.46x. TEVA’s forward EV/EBIT multiple of 7.43 is lower than PFE’s 10.94. Moreover, TEVA’s forward P/S multiple of 1.22 is lower than PFE’s 2.07.

Thus, TEVA is more affordable.

Profitability

TEVA’s trailing-12-month levered FCF margin of 20.51% is higher than PFE’s 15.85%. However, TEVA’s trailing 12-month gross profit margin of 45.40% is lower than PFE’s 69.82%.

POWR Ratings

PFE has an overall rating of C, which equates to a Neutral in our proprietary POWR Ratings system. Conversely, TEVA has an overall rating of B, which translates to a Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. TEVA has a grade of B for Growth, consistent with its robust financial performance in the recent quarter. PFE, conversely, has a Growth grade of F, consistent with the company’s deteriorating financial performance.

Moreover, TEVA has an A grade for Value. Its forward EV/Sales of 1.97x is 43.2% lower than the industry average of 3.47x. Its forward P/S multiple of 0.72 is 81.7% lower than the industry average of 3.93.

In contrast, PFE has a B grade for Value. Its forward EV/Sales of 3.46x is marginally lower than the industry average of 3.47x. Its forward P/S multiple of 3.14 is 20.1% lower than the industry average of 3.93.

In the 161-stock Medical – Pharmaceuticals industry, PFE is ranked #63, while TEVA is ranked #31.

Beyond what we’ve stated above, we have also rated both stocks for Value, Stability, Momentum, Value, and Sentiment. Get all PFE ratings here. To access TEVA Ratings, click here.

Winner

The pharmaceutical industry has experienced significant growth in recent years and appears well-positioned to continue expanding by steady demand. In times of economic instability, the industry's resilience makes it an attractive investment opportunity.

Both TEVA and PFE are positioned to benefit from these favorable industry tailwinds. However, TEVA’s superior Growth and Value metrics make it a better buy than PFE.

Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Medical-Pharmaceutical industry here.

43 Year Investment Pro Shares Top Picks

Steve Reitmeister is best known for his timely market outlooks & unique trading plans to stay on the right side of the market action. Click below to get his latest insights…

Steve Reitmeister’s Trading Plan & Top Picks >

TEVA shares were trading at $9.77 per share on Wednesday morning, up $0.02 (+0.21%). Year-to-date, TEVA has gained 7.13%, versus a 16.20% rise in the benchmark S&P 500 index during the same period.

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.

More...