Key Points
Teva's pivot from generic drugs to branded drugs has fueled an 100% surge for shares over the past year.
Based on recent results and catalysts, don't rule out a continued, steady move towards higher price levels.
Investors will want to monitor an upcoming drug pricing event that could affect earnings in the coming year.
Over the past 12 months, shares in Teva Pharmaceutical Industries (NYSE: TEVA) have rallied by around 108%. A key factor for Teva, one of the strongest-performing healthcare stocks, is its success in transforming itself primarily into a branded-drug company.
This pivot has already started to manifest in Teva's earnings, with the company expected to report earnings per share (EPS) of $2.11 in 2026 and $3.09 in 2027. If the turnaround keeps unfolding, the stock could keep gaining, albeit at a slower pace than before.
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What's next for Teva and its turnaround?
Back in July, Teva may have reported negative sales growth for the recently completed second quarter, but this overall drop, driven by a decline in Teva's legacy generic drug business, was far overshadowed by the continued success of its branded drug pivot. For Q2, Teva reported strong sales growth for its flagship branded drugs, with Ajovy, Uzedy, and Austedo reporting year-over-year revenue growth of 56%, 43%, and 40%, respectively.
Furthermore, management upped its full-year sales guidance for each of these drugs. For migraine treatment Ajovy, Teva raised its full-year sales guidance to $850 million to $870 million, representing a 26.3% to 29.3% increase. For Austedo, a therapy for Huntington's disease, Teva is guiding for between $2.45 billion and $2.6 billion in sales, an 8.4% to 15% increase from 2025. For schizophrenia treatment Uzedy, Teva guided sales of between $270 million and $290 million, a 41.3% to 51.8% increase.
So, what's next for Teva as it gears up for its Q3 2026 earnings release next week? Management's guidance update for Q2 2026 reflects another transitory period, with factors such as in-process research and development (IPR&D) impairment charges related to the Emalex acquisition, coupled with further declines in generic drug sales due to the pivot, affecting overall fiscal results.
However, if management continues to report strong growth for its trio of branded drug products and provides promising news on drug candidates such as the schizophrenia treatment Olanzapine and the Tourette's syndrome treatment Ecopipam, the market may respond bullishly to the earnings release.
Where shares could be trading in 2029
Based on next year's earnings forecasts, Teva trades at around 13 times earnings. This is at the upper end of valuations among pharmaceutical stocks, likely due to the prospect of a growth surge from Teva's branded-drug pivot. It's unclear whether the stock could experience further multiple expansion.
However, even if its forward valuation remains in the low teens, further growth in the years ahead could drive shares moderately higher. For instance, if earnings grow by 10% in 2028 and 2029 and forecasts call for a further 10% growth in 2030, three years out, the estimated 2030 earnings could be around $4.10 per share. If valuation holds constant, at 13 times forward earnings, it's not far-fetched to envision Teva trading in the low-$50s per share.
That may sound less exciting than shares doubling again, but there's still the potential for steady, solid returns for Teva in the years ahead. Don't get me wrong: While management has so far successfully executed Teva's turnaround, including a further cleaning up of its balance sheet by paying down and refinancing debt, don't assume the company is immune to potential hiccups.
For instance, last year, the Centers for Medicare & Medicaid Services (CMS) negotiated a 38% price reduction for Austedo, effective January 2027. Management and analysts may have already factored this into forecasts, but only time will tell whether it affects results a few quarters from now.
Still, unless results and guidance updates unveiled in next week's earnings release signal otherwise, Teva investors may want to maintain their positions to capture further upside from the generic drug company's successful pivot.
Thomas Niel has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.