Teva Pharmaceutical Industries Ltd (ADR): New Restructuring Initiative Is Solid Move- Now Let’s “See How It Plays Out,” Says Jason Kolbert

In the foreseeable future, Maxim's Jason Kolbert finds it unlikely TEVA will find itself in a place to boost its guidance.

Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) has been slowly, but surely winning over a cautious Street, with the stock’s valuation experiencing a boomerang recovery from its lowest point in November. The reason for renewed optimism? Danish CEO Kare Schultz is getting down to the nitty gritty and is not afraid to make heavy cost cuts in is new restructuring game plan to tackle the beleaguered biotech giant’s ghosts: debt, pricing pressure, and steep generic rivalry.

Maxim analyst Jason Kolbert praises this as “a step in the right direction,” but acknowledges that this is an initiative that is “going to take time.”

For a biotech swimming in roughly$30 billion in debt, the analyst questions if a savvy restructuring play with cost savings and product divestitures can “be enough,” maintaining a Hold rating on TEVA stock without suggesting a price target. (To watch Kolbert’s track record, click here)

Therefore, the analyst is left full of questions: “Where does Teva go from here and just how far can restructuring get them?” In fact, “We ask, does Teva have other options?” asks Kolbert, wondering: “What about converting some or all of the debt to equity and how might that impact valuation?”

“Debt for equity? It’s possible, in our view,” writes the analyst, putting forth two theoretical scenarios: one where Teva experiences no debt conversion and one where half of the $30 in debt is converted.

A no conversion take “assumes a ‘perfect’ scenario,” Kolbert explains, noting that in this ideal example, “all aspects of Teva’s announced restructuring are successful, debt obligations are met, the generics business turns around coupled with growth in new branded products.”

In a convert half scenario, half of the $30 billion Teva converts to equity- a scenario in which the analyst wagers the biotech giant would need to issue “a lot” of new shares converted at a “lower price.” The analyst believes, “In this exercise, we factor in the associated dilution, and increased growth rate (due to increased capital to invest). We arrive at a stronger more profitable company with a higher growth rate, but at an adjusted, lower price approaching low double digits.”

Bottom line, “The restructuring plan is a positive first step and we’ll see how it plays out. When will Teva be positioned to raise guidance? Probably not likely in the near term,” Kolbert surmises.

TipRanks highlights a largely apprehensive Wall Street surveying this beleaguered biotech giant, not having convinced analysts just yet of a full swing comeback. Based on 22 analysts in the last 3 months, 5 are bullish on Teva stock, 13 remain sidelined, while 4 are bearish on the stock. With a loss potential of nearly 6%, the stock’s consensus target price stands at $19.53.

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