Canaccord Initiates Hold On Teva Therapeutics; Sets $55.70 PT


In a research report issued ThursdayCanaccord analyst Corey Davis initiated coverage with a “Hold” rating on Teva Pharmaceutical Industries (TEVA) and a price target of $55.70 a share, based on the following: 1) valuation, 2) the stock’s recent move, 3) Street needs more execution proof, 4) Teva needs to become more active in M&A to fill its pipeline.

The following bullets contain some highlights from Davis’ initiation note:

  • Teva has done an excellent job of defending its Copaxone franchise (50% operating profit), but it is still not a growth driver. With the recent run in the stock, we think this success has already been reflected in the market.
  • Five of the six drugs in Teva’s brand portfolio (including Copaxone) that make up 30% of its revenue could see generic entry by 2018, and its brand pipeline is anemic in our view.
  • Five of the six drugs in Teva’s brand portfolio (including Copaxone) that make up 30% of its revenue could see generic entry by 2018, and its brand pipeline is anemic in our view.
  • We see $3-4B in cash flow as being relatively low risk and this, combined with a reasonable valuation at 11x 2014E EPS, keeps us from being more negative on the stock.
  • The addition of Mr. Sigurdur Olafsson (from Actavis) as global CEO of generics should breathe new life into Teva’s historic bread-and-butter franchise, but until there is evidence of gross margin improvement and tangible evidence for future growth, this $10B division will also not be viewed as a growth driver.
  • We think the Street is looking for more than the stated $500M in net savings from the $3B in gross savings initiative to flow to the bottom line. But until there is hard evidence that new CEO Erez Vigodman is willing to commit to this, we do not see the stock moving much higher from here. It could perhaps come from cuts in the women’s health and oncology portfolios. Hence, it’s all about the bottom line, in our view.

According to TipRanks, which measures analysts and bloggers success rate based on how their calls perform, analyst Corey Davis currently has an average return of 41.4% and a 88% success rate. Davis has a 2.5% average profit recommending TEVA, and he is ranked #24 out of 3135 analysts.

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