After a month of an absolute free-fall in shares, Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) stock grabbed a foothold yesterday after management announced the company’s newest President and CEO Kare Schulz. Though investors cheered the announcement by lifting TEVA shares by 19%, make no mistake about it, Schulz has his work cut out for him. The new CEO is walking into a company steeped in a $35 billion debt and strangled by the explosion of generic brands. Can the new CEO get the struggling pharmaceutical giant back on track?
Analysts from Oppenheimer and Maxim weigh in.
Can Schulz Do for Teva What He Did for Lundbeck Around?
Analyst Derek Archila of Oppenheimer points to the successful history of Schulz as CEO of Lundbeck for “leading the restructuring initiatives and the company’s turnaround, according to this morning’s press release. We believe this experience will be helpful, given TEVA’s current state. Since his hiring at Lundbeck as CEO, its stock has appreciated roughly ~200%. Shultz also spent almost ~30 years at Novo Nordisk and served as COO for the company from 2014-2015.”
However, the analyst further underlines the pressure that Schulz will face from generics and debt, noting: “Shultz will be entering the company at a turbulent time, given: (1) continued pricing pressure in US generics; (2) TEVA’s meaningful debt and inability to de-lever in a timely manner; and (3) high likelihood of Copaxone 40mg generics in 2018.”
Despite the company removing “one of several overhangs” by bringing on a new CEO, Zhou underscores that Schulz’s vision for TEVA is not yet known and therefore maintains a Performance rating on TEVA stock with a $18.54 price target. (To watch Archila’s track record, click here)
Is Schulz’s Experience in Chinese Market an Asset?
Analyst Gabrielle Zhou of Maxim highlights Kare Schulz’s “experience in restructuring initiatives, new product launches, large scale biologic production and new market expansion including China.” While certainly impressive, the analyst adds “Mr. Schultz’s leadership has been mostly focused on specialty products, and he is facing immediate challenges.”
These challenges include a debt of $35 billion and only $600 million in cash as of the end of second quarter 2017. Moreover, Archila quotes Teva’s own press release that the company is getting ready to divest non-core assets in an attempt to bring in a badly needed $2 billion. However, even via divestment, the company “can only meet the short-term obligation,” opines the analyst. Moreover, considering that Shultz is the third appointment in 3 years and that his predecessors all implemented failed policies, “it remains uncertain the new strategic direction for new management to take, in order for Teva to rebound,” notes Archila.
Looking at the bigger picture, the analyst is “excited to see Teva find a seasoned senior executive to lead the company through the many uncertainties it faces. These uncertainties temper our enthusiasm. The challenges of slowing growth (generics and branded) coupled with debt represent significant obstacles. Is divestiture of assets the solution, or perhaps Teva should just raise capital and face dilution? We look forward to better understanding how Kare Schulz will approach these issues.”
As such, the analyst maintains a Hold rating on TEVA stock with a price target of $15.50, representing a 16% dip below current trading levels. (To watch Zhou’s track record, click here)
Tipranks analytics reveal TEVA as a Hold. Out of 16 analysts polled by TipRanks (in the past 3 months), 1 is bullish, 12 are sidelined, while 3 are bearish on Teva stock. With a return potential of 36% the stock’s consensus price target stands at $25.28.