• If you are wondering whether Teva Pharmaceutical Industries at US$33.31 is still offering value or has already run too far, this article will help you frame that question clearly.
• Over the past week the stock is up 3.4%, while it is down 5.7% over the last month, with returns of 7.6% year to date and 98.7% over the past year adding important context for anyone weighing the balance of opportunity and risk.
• Recent coverage of Teva Pharmaceutical Industries has focused on its role within the broader pharmaceuticals sector and how investors are reassessing companies in this space after a period of strong share price performance. That backdrop helps explain why the stock's strong 1 year and very large 3 year and 5 year returns may be prompting closer scrutiny of what counts as a reasonable valuation today.
• On Simply Wall St's 6 point valuation framework Teva Pharmaceutical Industries scores 4 out of 6. The next sections will break down what different valuation methods say about the stock and then finish with a more holistic way to think about value that goes beyond any single model.

Approach 1: Teva Pharmaceutical Industries Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model estimates what Teva Pharmaceutical Industries might be worth today by projecting its future cash flows and then discounting those cash flows back to a present value. It is essentially asking how much the future stream of cash is worth in today’s dollars.

For Teva Pharmaceutical Industries, the latest twelve month Free Cash Flow is about $1.17b. Using a 2 Stage Free Cash Flow to Equity model, analyst estimates and extrapolated figures point to projected Free Cash Flow of around $4.10b by 2030. Simply Wall St provides ten year projections, with analyst inputs for the earlier years and extrapolated cash flows thereafter, all expressed in $ and discounted back to today.

On this basis, the DCF model indicates an estimated intrinsic value of $60.77 per share. Compared to the current share price of $33.31, the model output suggests the stock is 45.2% undervalued using these assumptions and projections.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Teva Pharmaceutical Industries is undervalued by 45.2%. Track this in your watchlist or portfolio, or discover 42 more high quality undervalued stocks.

Approach 2: Teva Pharmaceutical Industries Price vs Earnings

For a profitable company like Teva Pharmaceutical Industries, the P/E ratio is a useful way to relate what you pay for the stock to the earnings it currently generates. Put simply, it shows how many dollars investors are paying for each dollar of earnings.

What counts as a reasonable P/E depends on how the market views a company’s growth prospects and risk profile. Higher expected growth or lower perceived risk can support a higher P/E, while slower growth or higher risk tends to justify a lower multiple.

Teva Pharmaceutical Industries currently trades on a P/E of 24.8x. This sits above the Pharmaceuticals industry average of 15.0x and above the peer group average of 19.3x. Simply Wall St’s Fair Ratio for Teva Pharmaceutical Industries is 25.3x, which is its proprietary estimate of an appropriate P/E given factors such as earnings growth characteristics, industry, profit margins, market value and company specific risks.

The Fair Ratio offers a more tailored reference point than simple peer or industry comparisons because it attempts to adjust for differences in growth, risk and profitability. With the current P/E of 24.8x sitting very close to the Fair Ratio of 25.3x, the stock looks broadly in line with this metric.

Result: ABOUT RIGHT

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Upgrade Your Decision Making: Choose your Teva Pharmaceutical Industries Narrative

Earlier the article mentioned that there is an even better way to understand valuation, and on Simply Wall St this takes the form of Narratives. In this approach, you select or build a clear story for Teva Pharmaceutical Industries that ties your view of its products, pipeline, risks and opportunities to explicit forecasts for revenue, earnings and margins. These forecasts then translate into a Fair Value that can be compared with the current share price and is updated automatically when new earnings, news or analyst targets arrive. One investor might choose a more upbeat Teva Pharmaceutical Industries Narrative aligned with a higher Fair Value such as US$45.0, while another might prefer a more cautious Narrative anchored closer to the lower Fair Value region around US$21.53. Each of these stories can be explored and refined within the Community page where millions of investors share their assumptions and use those linked Fair Values as a framework for deciding whether the stock looks more attractive, more fully priced or more demanding relative to its current market price.

For Teva Pharmaceutical Industries however we will make it really easy for you with previews of two leading Teva Pharmaceutical Industries Narratives:

Each one pulls together different assumptions about growth, margins, risk and valuation, so you can quickly see which sounds closer to your own view before digging into the full detail.

Fair value: US$40.90

Implied discount versus current price: about 18.6% below this fair value, using the analyst target of US$40.90 and the last close of US$33.31.

Revenue growth assumption: 1.46% a year.

• Analysts in this camp see Teva Pharmaceutical Industries using its branded neuroscience and biosimilar portfolio to support higher margin earnings and improved free cash flow over time.
• They factor in operational savings of about US$700m and a more efficient product mix as levers to support higher profitability and ongoing debt reduction.
• This view leans on steady revenue growth, a higher future profit margin and a P/E of around 24x earnings by 2029 to support a fair value of US$40.90.

Fair value: US$21.53

Implied premium versus current price: about 54.8% above this fair value, using the bearish target of US$21.53 and the last close of US$33.31.

Revenue growth assumption: 1.01% a year.

• This more cautious view highlights Teva Pharmaceutical Industries reliance on a narrow set of branded growth drivers and a concentrated late stage pipeline, with concerns about execution and regulatory risk.
• It also factors in pressure on margins from competitive generics and biosimilars, potential cost inflation and uncertainty around restructuring and supply chain changes.
• Here, a fair value of about US$21.53 reflects lower revenue growth, more modest margin improvement and a P/E closer to 20.7x earnings by 2028, with analysts judging that current market expectations may be too optimistic.

Once you have a sense of which Teva Pharmaceutical Industries Narrative feels more realistic, you can fine tune the inputs on Simply Wall St or build your own version from scratch to see how your assumptions translate into a fair value range.

Do you think there's more to the story for Teva Pharmaceutical Industries? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.