Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) shares are falling 4% as depressing word has made its way through the Street that credit rating agency Fitch Rating has thrown the debt-shackled biotech giant to the rubbish pile, downgrading its rating to junk.
Goldman Sachs analyst Jami Rubin believes Teva demands cost restructuring to save itself following a rocky third quarter and challenging full year guidance reduction, which shows to this analyst that even withstanding “steep discounts” generics “haven’t reached a bottom.”
Updating estimates with a “blueprint” that takes under account cost cutting to the tune of $1 to $2 billion, the analyst maintains a Neutral rating on TEVA stock while dialing the price target from $18 to $13, which represents a close to 10% increase from current levels. (To watch Rubin’s track record, click here)
With this blueprint, the analyst believes Teva could find its way to better EBITDA as well as a “path to de-leveraging that would get TEVA back in a comfortable position with respect to its debt load.”
From Rubin’s perspective, “The biggest concern after lowering guidance yesterday is the follow-on impact to the company’s deleveraging path,” as the analyst calculates: “Based on our updated estimates, we think TEVA’s net leverage could reach the mid-5.0x level barring additional cost cuts and/or asset sales. We expect the stock to remain under pressure until the new CEO lays out a strategic plan providing visibility on how the company plans to return to net leverage in the 3.0x area over time.”
Not all confidence is lost for Teva even in these trying times, as the analyst concludes on a positive note: “We were encouraged to hear that TEVA views an equity issuance as a last resort. Given the limited impact of asset sales so far, we think cost cutting could be a potential next step for TEVA, though recognize it wouldn’t happen over night.”
With a Kare Schultz raring to direct the company out of its troubled waters after a standout history at Lundbeck, Rubin sees room for Teva to find footing to stable ground just yet.
Most analysts are tossing and turning when it comes to the risky gamble that the Israeli pharma giant presents, as TipRanks analytics demonstrate TEVA as a Hold. Out of 20 analysts polled by TipRanks in the last 3 months, 3 are bullish on Teva stock, 14 remain sidelined, and 3 are bearish on the stock. With a return potential of nearly 46%, the stock’s consensus target price stands at $17.18.