The numbers were generally in line with expectations and on a fundamental basis appear very appealing. Stock traded at $42 and the company guided to $5.58. Anybody doing simple math can probably conclude that a continue earning that much money and trading at only 7x estimates is cheap.
For our Net Payout Yields model though, the fundamental picture such as PE ratio and earnings growth just don't matter.
What matters is that TEVA announced a $3B stock buyback and the potential for dividend hikes. As compared to the $5B buyback announcement of Oracle (ORCL) yesterday, the TEVA deal amounts to 8% of the current outstanding stock with company having a $37B market cap.
Clearly the TEVA deal is much more attractive, but the key will be whether the money gets spent and how quickly considering the mention of a 3 year time period. The NPY model only invests in companies that follow through with purchases.
Teva also has a 1.6% dividend yield so that also doubles the meager 0.8% yield for Oracle.
Detail on $3B Share Repurchase Program:
- announced today that its Board of Directors has authorized the Company to repurchase (including through one or more subsidiaries) up to an aggregate of $3 billion of its ordinary shares/ADRs from time to time, based on market conditions.
- At Teva’s current market capitalization, this amount would represent approximately 8 percent of the outstanding common stock.
- Given the Company's strong cash generation and cash position, the repurchase program will be financed out of free cash flow, without the need to increase leverage.
- In the twelve months ended September 2011, Teva has returned more than $2.5 billion to shareholders through dividends, share repurchases and redemptions of convertible bonds. (while the repurchase and issuance of debt doesn't currently factor into the NPY equation that is being explored)
- The repurchase program has no time limits and is expected to be completed over a three-year period.
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