Teva lags as dividend yield trails Pfizer, Merck

Teva Pharmaceutical Industries Ltd., the world’s biggest generic-drug maker, is trailing peers by the most in almost seven years in the stock market on concern the Israeli company isn’t returning enough cash to shareholders.

Teva slipped 0.8 percent to a two-month low of $37.80 in New York on Thursday after posting a 26% drop in first-quarter profit. As the NYSE Arca Pharmaceutical Index surged 23% in the past year, Teva slumped 17%, trading at the biggest disparity since July 2006, data compiled by Bloomberg show.

While Teva’s free cash flow rose to a record in 2012, its dividend yield of about 2.8% is the lowest among eight of the world’s largest drugmakers including Pfizer Inc. and Merck & Co., data compiled by Bloomberg show. Petah Tikva-based Teva, which appointed a new chief executive officer a year ago, is facing competition for some of its best-selling medicines as patents come up for expiration.

“It would be great if they could get their dividend more in line with Big Pharma,” Todd Bassion, a portfolio manager at Delaware Management Co. in Boston who helps manage $1 billion, including Teva shares, said Thursday by phone. “It would be well-received by the market if they came out and said they were getting more aggressive with this. They certainly have the ability to.”

Earnings drop

Earnings excluding some costs for Teva declined to $960 million, or $1.12 a share, from $1.3b., or $1.47 per share, a year earlier, the company said Thursday in a statement. Teva’s adjusted profit is forecast to decline 3.4% to $5.18 a share this year, according to the median of 19 analysts’ estimates compiled by Bloomberg. That would be the first drop since 2006.

CEO Jeremy Levin, who came to Teva from New York-based drugmaker Bristol-Myers Squibb & Co. last May, in December said Teva would use 20% to 25% of cash flow from operations to pay dividends and will generate as much as $5.5b. in “organic cash flow” a year until 2017.

Sales from Copaxone, the multiple-sclerosis treatment that is Teva’s best-selling product, are facing new competition from Biogen Idec Inc.’s Tecfidera treatment, which won US approval on March 28. The MS drug grabbed an 8% share of the market in the week ended April 19, according to Bloomberg Industries.

“If you’re asking investors to be patient while Teva reinvents itself, then returning more capital in the meantime is a way to placate investors,” Randall Stanicky, an analyst at Canaccord Genuity Inc. in New York, said Thursday by phone. He reduced his rating on Teva to hold from buy in February, citing disappointment over their dividend policy.

Review ‘frequently’

Teva’s board will continue to review dividends “frequently,” chief financial officer Eyal Desheh said Thursday on the conference call. The company will declare a 32-cent dividend on May 9, according to the Bloomberg Dividend Forecasting Team.

Teva is “trying to act in the best interest of shareholders,” Kevin Kedra, an analyst at Rye, New York-based Gabelli & Co., a unit of Gamco, said Thursday by phone. He has a buy rating on the drugmaker’s American depositary receipts.

“Investors are waiting to see how their strategy will play out,” Kedra said. The ADRs dropped 0.8% to $37.80 on Thursday in a third straight day of declines.

More than 50% of the 30 analysts who cover Teva’s ADRs on Bloomberg rate it hold, while 47% have allocated a buy rating. No one recommends selling the stock. The average price target is $45.06, representing a gain of 19% over the next 12 months. (Bloomberg)