What to Expect Ahead of Teva Pharmaceutical Industries Ltd (ADR) Q4:17 Earnings: Oppenheimer

Oppenheimer's Derek Archila says Teva shares are "not cheap" considering the risk factor of the new cost-cutting plan and headwinds circling.

Oppenheimer analyst Derek Archila is walking on eggs with Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) shares in a wary fourth quarter earnings preview.

With a 4Q print due February 8th, the analyst says watch out for two key headwinds this year: one hitting the recovering biotech giant’s Copaxone franchise, the second hovering around the domestic generics segment. Expect Teva to more or less meet expectations in its fourth quarter turnout, but all the same, the analyst warns: “we believe 2018 sales/EPS will need to come down.”

As such, the analyst reiterates a Perform rating on TEVA stock without listing a price target. (To watch Archila’s track record, click here)

“We believe Copaxone erosion will be greater than consensus forecasts given MYL’s aggressive discounting/MNTA/Sandoz entry and TEVA’s US Generic faces a meaningful headwind as its g-Concerta will see additional competition. With shares trading at ~11x our 2018 EBITDA estimate, TEVA is not cheap given the amount of execution risk around the company’s restructuring initiative, in our view,” writes Archila.

The analyst angles for Teva to hit sales of $5.25 billion and EPS of $0.76, less confident than consensus expectations looking for $5.34 billion in sales and $0.77 in EPS. On a positive note, the analyst wagers Teva’s domestic generics segment can benefit from three first-to-file launches, with Viagra, Reyataz, and Viread that all launched by the end of the quarter. The collective sales from these three products could total around $150 million just for the fourth quarter.

Yet, Archila likewise pinpoints share erosion from g-Concerta, noting shares plummeted from approximately 62% in the third quarter to roughly 46% by the fourth quarter. In other words, this could translate to anywhere between an estimated $30 to $40 million headwind for Teva’s U.S. generics business. Though the analyst is less optimistic than the Street on sales and EPS expectations, in terms of U.S. Generic expectations, the analyst bets on $1.28 billion, which climbs above consensus of $1.23 billion.

When taking in expectations for the new year, the analyst would not be surprised to see more first-to-files through the first half of the year, even as Archlia calls for rising rivalry in the g-Concerta playing field, something that lingers as a “major headwind” circling the company’s domestic generics segment for the rest of the year. For generics in the European Union (EU), the analyst forecasts roughly $900 million in sales, more than consensus of around $974 million. For generics expectations in the rest of the world (ROW), the analyst’s estimate of approximately $847 million likewise stands above the Street’s around $828 million projection.

Overall, “We believe TEVA remains a wait and see story,” asserts Archila, concluding: “While the recent restructuring plan has been met with a lot of investor enthusiasm, we believe there is a fair degree of execution risk. We maintain this will be a protracted turnaround and we expect continued pressure on TEVA’s Copaxone franchise along with modest growth or potentially no/declining growth from its US Generic business as TEVA plans to prune unprofitable products.”

TipRanks shows Archila is not the only one acting on Teva from a cautious stance, with Wall Street split between the confident and those sounding the alarm. Based on 22 analysts polled in the last 3 months, 5 rate a Buy on the beleaguered biotech giant, a majority of 13 maintain a Hold, while 4 issue a Sell on the stock. With a loss potential of 6%, the stock’s consensus target price stands at $19.71.  

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