Teva Pharmaceutical Industries Ltd (ADR) (TEVA): Risky Fundamentals Likely To Just Get Worse This Year

BTIG's Tim Chiang is out with a bearish case against Teva after last week's less-than-stellar 2018 guidance reveal.


Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) has one analyst unconvinced in its recovery story, as this bear sees a bleaker picture of fundamentals going downhill and elevated leverage.

BTIG analyst Tim Chiang makes a bearish case after the company’s fourth quarter results tanked the beleaguered Israeli pharma giant’s shares almost 11%.

True, Teva dished out a fourth quarter print with better than anticipated earnings. Teva served up a solid $0.93 in EPS against Chiang’s $0.70 forecast. Yet, the analyst cannot help noting most of the upside stems from stronger-than-anticipated Copaxone sales, reaching $821 million. This is the very multiple sclerosis drug facing fierce generics rivalry this year as an increasing number of generic versions of 40 mg Copaxone get a green light.

Meanwhile, the 2018 guide sharply underwhelmed Street-wide expectations, which largely sent the stock dropping. Teva guided revenues of $18.3 to $18.8 billion, adjusted EBITDA of $4.7 to $5 billion, and adjusted EPS of $2.25 to $2.50.

In reaction, the analyst is scaling his total revenue expectations down under the company’s outlook to $18.1 billion- and cutting EPS from $2.75 down to $2.36. Additionally, apprehensive as looming generic rivals hang ahead, the analyst is reducing his worldwide Copaxone sales estimate from $2,260 million to $1,785 million.

Chiang highlights, “With Momenta […] recently indicating that the FDA has updated the compliance status for Hospira’s (division of Pfizer, PFE, Not Rated) McPherson facility to voluntary action indicated (VAI), we expect Momenta to gain approval shortly with its partner Sandoz (division of Novartis […]) likely to launch by April.”

Bottom line, “While we think new CEO Kare Schultz’s reorganization plan may lead to a longer-term recovery, we think fundamentals are likely to deteriorate further in 2018. We maintain our SELL rating based on 1) a lack of visibility on where the bottom is in the Co.’s US generic segment, 2) how many generic versions of 40 mg Copaxone could be approved in 2018, and 3) how the Co. gets out from underneath the ~$32B of outstanding debt on the Co.’s balance sheet. In 4Q, the Co. took an $11B goodwill impairment on its US generics business, which is another major write-down following last year’s $6B goodwill impairment which occurred in 2Q17,” Chiang asserts.

Therefore, the analyst sees no reason to take a gamble here, reiterating a Sell rating on TEVA stock with a $17 price target, which implies a close to 10% downside from current levels. (To watch Chiang’s track record, click here)

TipRanks points at a cautious, yet not so bearish analyst consensus against Chiang’s negative take on Teva. Out of 21 analysts polled in the last 3 months, 4 are making a bullish bet on the beleaguered Isreali pharma giant, 12 are hedging their bets on the sidelines, and 5 are bearish on the stock’s opportunity. The 12-month average price target stands at $18.67 aligning with where the stock is currently trading in the market.