This Analyst Is Struggling to See Teva Pharmaceutical Industries Ltd (ADR) (TEVA) Find a Path for Growth

Unfavorable Teva risk/reward and steep valuation keeps Oppenheimer on the sidelines.

Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) stock is looking expensive, especially considering the company continues to be plagued by a whale of debt and a cutthroat generics domestic market threatens the troubled Israeli pharma giant’s products.

Oppenheimer analyst Derek Archila is out with a cautious research note, warning that the “stock isn’t cheap at these levels,” and as such, he reiterates a Perform rating on TEVA stock without listing a price target. (To watch Archila’s track record, click here)

True, the TEVA team opted for a divestment strategy that has lessened debt paydown, but even so, the analyst points out the company will fail to reach its paydown target for this year. Meanwhile, Archila points to a valuation that likely “reflects enthusiasm for the new CEO” Kare Schultz, cherry-picked to steer the sinking ship away from the iceberg. Yet, the analyst still needs to hear further “details around his strategic vision,” which should arise in the next months.

Meanwhile, with the domestic generics business, Archila sets expectations for a dip from next year through 2019, especially considering rising rivalry for Teva’s generic Concerta. To grow its generics segment, the analyst predicts Teva would at bare minimum have to launch roughly $700 to $800 million worth of new products, which just seems “unlikely.”

Archila contends, “Plain and simple, TEVA is not a growth story in the near to medium term. Further, the company faces significant headwinds to its base business (i.e. g-Copaxone, US generic erosion) along with a massive debt load. Post 3Q17, we are no more confident than before and don’t believe the shares look cheap based on our revised EBITDA estimates. We maintain TEVA’s turnaround will be protracted and expect when new CEO Kare Schultz outlines his new strategy, it will come with deep cost cuts. We struggle to see a path for growth and don’t expect contributions from Austedo or fremanezumab (assuming approval) to offset the lost profits from Copaxone any time soon. We still don’t see a favorable risk/reward at these levels and prefer to remain on the sidelines.”

Wall Street tends to back Archila’s decision to play it cautious on the giant, as TipRanks analytics exhibit TEVA as a Hold. Out of 20 analysts polled by TipRanks in the last 3 months, 3 are bullish on Teva stock, 13 maintain sidelined, and 4 are bearish on the stock. With a return potential of nearly 30%, the stock’s consensus target price stands at $15.21.

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