Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) shares were falling 6% yesterday, with investors once again finding reason to flee from this troubled biotech giant. News broke that Teva continues its divestiture strategy to tackle looming debt shackles weighing beyond $30 billion heavy on the stock.
Selling off the last of its Women’s Health assets for roughly $2 billion in net proceeds, split between two separate transactions, on the heels of the company’s Paragard intrauterine copper contraceptive sale to CooperSurgical in a $1.1 billion cash deal just this time last week, Teva interim CEO Yitzhak Peterburg has his eyes on saving this ship from rocky waters.
Cantor analyst Louise Chen takes in the news from a cautious vantage point, unlike the rest of the skittish Street that jumped at another divestiture, believing this strategy could be a savvy one: “Divestures should remove risk of covenant breach at year end and an overhang.” In fact, considering the company had discussed in the past about seeking to bring in around $2 billion in net proceeds to the table from the divestiture of its Women’s Health and European Oncology/Pain segment, the analyst takes the valuation in stride as “a positive, with the net proceeds from a future sale of oncology/pain being upside to expectations.”
For now, the analyst maintains a Neutral rating on TEVA shares with a $17 price target. (To watch Chen’s track record, click here)
“We view the valuation received as higher than the Street, and Teva, had expected,” praises Chen, who looking beyond yesterday’s sale also believes the divestiture should give rise to further proceeds down the line.
When assessing the debt factor, the very reason Peterburg has his attention set on these divestures, the analyst notes, “The sale should enable Teva to pay down sufficient debt to remain in compliance with its covenants at year end. We think this point is underappreciated by the Street, and should remove an overhang on the stock.”
Overall, the path is looking less apprehensive to Chen when it comes to this troubled biotech giant, as he concludes, “We view the divestitures, recent appointment of a new CEO and forthcoming debt paydown as positives for Teva stock, which we think should help unlock value in Teva’s assets and drive share appreciation.”
Most on the Street are right there with Chen, staunchly on the sidelines, as TipRanks analytics demonstrate TEVA as a Hold. Out of 17 analysts polled by TipRanks in the last 3 months, 2 are bullish on Teva stock, 17 remain sidelined, and 3 are bearish on the stock. With a return potential of 31%, the stock’s consensus target price stands at $22.27.