The Japanese yen continues to fall. While they’re a headwind for US companies making sales in Japan, the world’s third-largest economy, Japan-based companies doing business in other countries actually benefit from a weaker yen. A healthcare name that pays a large dividend has suffered this year even with a favorable wind on the currencies.
USDJPY: up more than 30% YoY
According to Bank of America Global Research, Takeda Pharmaceutical (NYSE:TAK) is one of Japan’s leading drug manufacturers. Profits fell with Actos’ patent expiration in 2010, but management is targeting a recovery through Entyvio, Ninlaro and the acquisition of Shire in 2019. Major therapeutic areas include IG, oncology, CNS and rare diseases, with two distinct business lines in plasma and vaccine. Management’s focus is on becoming the first-ever Japan-based global pharmaceutical company with Shire, but the near-term focus will be on cost reduction, divestments and pipeline improvements.
The $43 billion market capitalization Japanese healthcare company is engaged in the research and development, manufacturing, import and export sales and marketing of pharmaceutical drugs. It operates through the following segments: prescription drugs, consumer healthcare and others. TAK trades at 25.6 times 12-month GAAP earnings and pays a high dividend yield of 4.7%, according to the Wall Street Journal.
On the valuation side, BofA analysts see mixed earnings growth prospects. In my opinion, this makes its high P/E ratio unattractive. Moreover, the dividend yield is not expected to increase over the next few years. On the bullish side, TAK’s EV/EBITDA multiple is low and the company’s free cash flow yield is strong and stable. So it’s a mixed assessment picture overall. BofA notes that there is, however, a lack of new drugs in the pipeline.
TAK: Earnings, valuation, dividend forecasts
Looking ahead, Wall Street Horizon shows that several FDA events could impact the industry and stocks. But the biggest catalyst for volatility could come on Oct. 27, when Takeda releases its confirmed Q2 2022 earnings report.
Takeda Corporate Events Calendar
The technical grip
TAK shares are in a downtrend with support near $13. Investors should also take note of the March 2020 low of $12.43. After repeatedly failing to break above the 2018 $20-$21 range early last year, the stock fell in October last until mid-teens. Then $15 became resistance for this ADR stock earlier this year.
Based on the bearish descending triangle continuation pattern, I think the stock has distorted downside risks. A bearish price target of $9 would trigger on a move below $13. If a break above $15 occurs, however, the stock could move back into the $20 area.
TAK: Bearish Descending Triangle Pattern
There are mixed indicators with TAK. The valuation is reasonable with stable free cash flow and a large dividend, but its growth prospects appear limited. The technical picture is bearish with the stock dangerously close to breaking support. I would rather wait for a flush below $13 before buying stocks that don’t look like they can benefit from positive currency moves.