Teva Pharmaceutical Industries Ltd (ADR): From a Bull to a Bear; Tim Chiang Is Officially Throwing in the Towel

Generics price erosion; the ghost of debt maturation- BTIG's Tim Chiang sees too many risks to hope for Teva's recovery anymore.


BTIG analyst Tim Chiang used to be a bull, rooting for the Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) recovery story- until January 19th, when the analyst downgraded the stock to Neutral.

At the time, the analyst had still pointed to optimism for the turnaround narrative, calling shares “fairly valued.” Less than a month ago, the analyst was confident in the beleaguered Israeli pharma giant’s market opportunity. However, this has all changed, as the analyst now warns there are three looming short-term “risks” that “investors need to consider.”

As such, the analyst is downgrading from Neutral to Sell on TEVA stock with a $17 price target, which implies a close to 13% downside from current levels. (To watch Chiang’s track record, click here)

Chiang’s bearish case boils down to the following monster concerns: “1) our expectations for continued declines in the US Generics segment in CY18 as price erosion and additional competition impacting key existing generic products (ie Concerta), 2) Copaxone sales declines in CY18 (due to generic competition) having a significant impact on cash flows but also the overall tax rate – (we estimate Copaxone profits are taxed at just ~6%), and 3) a rising interest rate environment combined with the recent credit rating downgrade leading to substantially higher borrowing costs (we think the days of Teva financing debt at below 3% are over). We estimate Teva has – ~$15B of debt that matures in CY18-CY21. While the shares rallied yesterday on news of Teva getting $700M from Allergan […], which will be used to pay down debt, we see the CO’s leverage (debt/Ebitda) ratio still rising to ~5.9x.”

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It is not that the analyst is not “encouraged” by new CEO Kare Schultz’s down-to-the-nitty-gritty $3 billion cost cutting initiative. Rather, Chiang wagers Teva shares “are now pricing in a quick recovery for the CO’s generic and branded segments which we think is unlikely to occur.”

For the full year of 2018, the analyst concludes with expectations under the Street, calling for $18.9 billion in revenues from Teva and $2.75 in adjusted EPS.

TipRanks indicates caution is overtaking the Street on the Israeli pharma giant’s comeback. Out of 19 analysts polled in the last 3 months, only 4 are bullish, with a majority of 10 sidelined on Teva stock and 5 bearish, running for the hills. With a loss potential of nearly 3%, the stock’s consensus target price stands at $19.17.