There’s been much ado about Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA). The generic drug giant has too much debt and is experiencing pricing pressure. On top of that, new competition for its No. 1 drug Copaxone has arrived. Investors are also asking whether the new leadership, CEO Kare Schultz can turn the company around.
During the fourth-quarter, Teva announced an important restructuring plan, and Cantor’s Louise Chen is looking for more color on what the plan will look like when Teva reports 4Q17 results and on where more cost cuts could occur.
“The cost of restructuring is expected to result in a $700MM one-time charge and cash outlay in 2018 that may be concentrated mainly in 2Q18 and 3Q18, according to the company. The impact of divestments total ~$900MM in revenue for 2018, which includes the Women’s Health business and the Hungarian distribution business. In addition, the $150MM in Ninlaro royalty stream that came in 1H17 will not be repeated going forward, and Teva could face generic competition to ProAir in the U.S. as early as mid-2018,” Chen points out.
The analyst also thinks an update on any of Teva’s discussions with the rating agencies will be important. If the company is downgraded from its investment-grade rating, $6 billion of term loans will be affected immediately, subject to a 25 basis-point increase in interest rates.
“We estimate a $3.7B+ headwind to TEVA’s 2018 sales, driven by cost cuts, generic competition for Copaxone, and product divestitures. The company expects the tax rate in 2018 to be a few points higher than in 2017 (~15.5%) due to the reduction of Copaxone revenues,” Chen concluded.
The analysts reiterates a Neutral rating and $18 price target on Teva shares, which implies a potential downside of 8% from today’s closing price. (To see Chen’s track record, click here)
Wall Street absolutely echoes Chen’s tone of caution on TEVA, with TipRanks analytics exhibiting the stock as a Hold. Out of 22 analysts polled in the last 3 months, 5 are bullish, 14 are neutral, and 3 are bearish. With a downside potential of 5.5%, the stock’s consensus target price stands at $18.50.