Bear’s Eyes Are on Teva Pharmaceutical Industries Ltd (ADR) Earnings Due Next Week

RBC Capital's Randall Stanicky says everything rides on Teva's power to keep a grip on 2020 revenue.


Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) is shifting to a new story: what revenue can this Israeli pharma giant sustain by 2020? Now that new Danish CEO Kare Schultz has gritted his teeth to make the tough calls necessary to salvage this recovering giant from a well of $30 billion in debt, the conversation has reprioritized.

RBC Capital analyst Randall Stanicky says the “key” to Teva stock’s future success rests on its “ability to hold the line on 2020E revenue.”

Especially as by next Thursday, the TEVA team will be releasing its full-year 2018 guide, Stanicky looks for “important color around expectations” to be provided.

“With cost cutting debate behind us given the perceived credible $3 billion target, discussions have been centered specifically on what revenue level TEVA can hold in 2020E and beyond. That is where we think those with a ‘multi-year’ horizon are focused and as such views here will drive the stock,” comments Stanicky. Though investor sentiment 3 years from now seems “less clear,” for now, the analyst understands the gravity of the forthcoming revenue guide from Teva in the short-term.

Sometimes it all boils down to perspective, and from where this bear is standing, “the stock feels expensive at 10x 2019E EBITDA;” yet, the analyst acknowledges, “the bull case sees it as inexpensive at 5.87x 2020E ‘P/E.'” However, Stanicky cannot help wondering whether this company is capable of holding a revenue range circling roughly $19 billion when headwinds are flying- all while bearing the brunt of “aggressive cost cuts” throughout the next two years.

Overall, “More near-term as we think about 2018E, our view of the buyside ‘over/ under’ for guidance remains unchanged. […] Not withstanding the fact that we think out-year revenue assumptions are more important to the story, we think a midpoint revenue guide below $19 billion and EBITDA below $5 billion would disappoint. The irony with 2018E is that while generic Copaxone timing assumptions will have a big impact this year, it matters less to 2020E and beyond as we and most others expect several generics by then,” Stanicky concludes.

In reaction, the analyst reiterates an Underperform rating on TEVA stock with a $13 price target, which implies a close to 40% downside from current levels. (To watch Stanicky’s track record, click here)

TipRanks suggests this Israeli pharma giant has given the Street cause to be apprehensive- a battle very much divided between the bulls and the bears. Out of 21 analysts polled in the last 3 months, 4 are bullish on Teva stock, a majority of 13 remain sidelined, while 4 are bearish on the stock. Is this stock overvalued or undervalued based on consensus expectations? Consider that the 12-month average price target of $18.71 points to 13% in loss potential for Teva shares.

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