This Analyst Still Projects Over 40% Downside For Teva Pharmaceutical Industries Ltd (ADR) (TEVA); Here’s Why

Until share value is unlocked, Cantor's Louise Chen finds it difficult to recommend TEVA shares.

Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) is shaking up the market today. Investors must have liked what they heard during new Danish CEO Kare Schultz’s first conference call today, where the Israeli pharma giant revealed details of its new strategy.

In a restructuring scramble to save $3 billion by the close of 2019, the company will be scaling back its workforce by more than a quarter, laying off 14,000 people. These details substantially outclass the Street’s expectations of a layoff impacting 10,000 jobs and restructuring savings of between $1.5 and $2 billion.

Cantor analyst Louise Chen continues to be cautious, not blind to the “long road” that lies ahead for Teva, but acknowledges this is certainly a “first step in the right direction” for the rebounding giant.

In reaction, the analyst reiterates a Neutral rating on TEVA stock with a price target of $10, which implies a 43% downside from current levels. (To watch Chen’s track record, click here)

As far as Chen calculates the benefits of the restructuring, the full savings could translate advantageously to the stock’s EPS by $1.80 to $2.30. Notably, FactSet consensus calls for Teva’s EPS to hit $2.86 in 2018.

The analyst notes, “Teva will suspend its dividend and will not pay bonuses this year. Although the dividend suspension is not good for equity investors, we think Teva’s credit investors are probably very happy with the cost saving measures taken today.”

Overall, “Teva expects the implementation of the plan to cost $700MM in 2018, with more than half the savings being achieved in 2018. Teva will optimize its generics portfolio, mainly in the U.S., through price adjustment and product discontinuation, and the plan includes a scale back of R&D programs across the company, resulting in the reduction of Teva’s workforce by 14,000. Additional actions taken include the suspension of the dividend and not paying bonuses for 2018, which we view as a positive as Teva has ~$2.3B in notes due in 2018, as well as meaningful term loans,” Chen surmises.

Moving forward, the analyst looks for a full-year guide for next year by the company’s fourth quarter of 2017 call come February.

TipRanks likewise illustrates a majority vote on Wall Street that aligns with Chen’s play-it-safe attitude, with just 2 analysts bullish on Teva out of 18 polled in the last 3 months, 12 remaining sidelined, and 4 bearish on the stock. With a loss potential of 19%, the stock’s consensus target price stands at $14.50.

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