Cantor Asserts That Teva Pharmaceutical Industries Ltd (ADR) (TEVA) Loan Amendments Get Rid of Meaningful Overhang on Stock

Analyst says share weakness does not stem from encouraging news, but points to other underlying concerns.


Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) shares dipped 6% Monday after news broke that the troubled Israeli pharmaceutical giant was set to sell the last of its women’s health assets in a $1.38 billion deal. Additionally, the company revealed it had revised its USD and JPY term loan along with having resolved credit facilities- the very loans that have had shareholders raising eyebrows.

With roughly $6.5 billion now applied to these loans, Cantor analyst Louise Chen says investors should “[give] credit where it’s due,” taking this as “more good news for Teva today,” considering the amendment lessens the risk factor for Teva breaching the covenant.

For now, the analyst surveys cautiously optimistic on the giant’s prospects from the sidelines, maintaining a Neutral rating on TEVA stock with a $17 price target, which implies a 2% downside from where the stock is currently trading. (To watch Chen’s track record, click here)

When it comes to these amendments, the analyst takes the news in stride, elaborating: “This removes a meaningful overhang on the stock, in our view. The amended leverage ratio covenants permit a maximum 5.0x leverage ratio through and including 12/31/2018, declining gradually to 3.5x by 12/31/20. Before these amendments, Teva had to be at a 4.25x leverage ratio by year end 2017 and 3.5x by year end 2018.”

So what happened that sent investors running for the hills? From the analyst’s eyes, “The weakness in the stock yesterday despite positive news flow can be attributed to three things, in our view, 1) There is no start date for Kare; 2) There were concerns that Teva was going to issue equity, but that should now be a non-issue; 3) Mylan’s (Neutral) target action date for Copaxone is in September. We think an approval of Copaxone would actually help the stock because it would improve earnings visibility.”

In the bigger picture, the giant’s moves could really pay off, argues Chen, who concludes: “We view the divestitures, recent appointment of a new CEO and forthcoming debt paydown as positives for Teva stock, which we think should help unlock value in Teva’s assets and drive share appreciation.

Wall Streets’ take on this troubled pharmaceutical giant points to one of overall apprehension, considering¬†TipRanks analytics showcase TEVA as a Hold. Out of 17 analysts polled by TipRanks in the last 3 months, 2 are bullish on Teva stock, 12 remain sidelined, and 3 are bearish on the stock. With a return potential of nearly 30%, the stock’s consensus target price stands at $22.27.