Teva Pharmaceutical Industries has captured Cramer’s attention of late, and for two important reasons: its acquisition of Ratiopharm in mid-March and the $40 billion worth of branded-drug patent expirations expected between this year and 2013. Both should be key earnings drivers going forward.
Teva , the world’s largest generic drugmaker, holds a “massive opportunity” from those patent expirations, Cramer said, and he expects the company to take market share over the next three years as a result. Maybe even more important, though, is that buyout of Ratiopharm. Teva's stock jumped on the deal, which in the very least is a ringing endorsement from the market.
On March 18, Teva announced it would pay $5 billion for Ratiopharm and its 35% piece of the European generics market. The deal is supposed to double Teva’s sales in Southern Europe, in addition to generating $400 million in cost savings over three years. Also, the acquisition of Ratiopharm lends credibility to Teva’s 15% long-term growth rate, which some investors had doubted prior to the announcement.
But this deal doesn’t just boost earnings. It also increases Teva’s earnings visibility. And the better that visibility, the more the market is willing to pay for a company’s earnings. That means the stock deserves a higher multiple, Cramer said, which makes Teva now look inexpensive compared to its rivals.
To understand why this transaction was so important, and to give viewers an idea of why Cramer thinks the stock is cheap even when it’s less than $2 off its 52-week high, he invited Teva North America CEO William Marth on the show. Watch the video for the full interview.
Cramer's charitable trust owns Teva Pharmaceuticals.
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