Teva Pharmaceutical Industries Ltd (ADR) (TEVA) Gets a Price Target Boost After This Analyst Finds the Pharma Giant Is Safer from a Credit Downgrade

Mizuho's Irina Rivkind Koffler may remain apprehensive on generics competition, but the analyst likes what she sees with new plans for corporate restructuring.

After discussions with the Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) team, Mizuho analyst Irina Rivkind Koffler is feeling a bit more comfortable on the struggling Israeli pharma giant despite rivalry in the generics arena.

Under the new leadership of Danish CEO Kare Schultz, there was a big shakeup at corporate headquarters this week that sent shares upward on gains of almost 10%. Koffler is encouraged to see Teva in a new restructuring light where Teva intends to streamline its generic and branded segments under one branch. Between the structural transformation at play coupled with executives on their way out, Schultz has his eyes on a more profitable, cost-effective company that can rally forward from the weight of debt.

On back of speaking with management, the analyst maintains a Neutral rating on TEVA stock while lifting the price target from $12 to $16, which implies a nearly 8% upside from where the stock is currently trading. (To watch Koffler’s track record, click here)

Koffler explains, “After suggesting that Teva may be able to avoid a downgrade to high yield in our last note, we received significant investor critiques, which we attempt to incorporate into our revised analysis. We also spoke with the company following the recent restructuring announcement. While we are still cautious about additional Copaxone entrants and continued generic price pressure (and reiterate our Neutral rating), we are growing increasingly constructive on TEVA because we think new management plans to announce stronger-than-expected cost cuts and provide visibility towards future de-levering in an attempt to avoid a downgrade. Our credit desk believes that bond rating agencies could in fact delay the downgrade if there is sufficient visibility to longer-term de-levering.”

Glancing ahead, “We think Teva plans to announce major cost cuts and to pause asset sales for the time being (possibly to improve operating margins and drive higher valuations),” Koffler asserts, anticipating an announcement by the middle of next month with expectations for Teva to dial back its common dividend remainder ($380 million).

Teva’s preferred dividend of $260 million per year closes next year with an option to push out the payment to the end of the year, the analyst discovered in talking to the TEVA team. In understanding a meaningful portion of the pharma giant’s capital expenses (CapEx) investment goes to IT/SAP initiatives, Koffler highlights room for “cash conservation” here. Though the analyst has dialed back on her revenue expectations for 2018, she nonetheless contends that “2018 EBITDA outlook could beat consensus estimates.”

Wall Street sides with Koffler on the sidelines for the most part, with TipRanks analytics demonstrating TEVA as a Hold. Out of 19 analysts polled by TipRanks in the last 3 months, 3 are bullish on Teva stock, 12 remain sidelined, while 4 are bearish on the stock. The stock’s consensus target price target stands at $14.64.

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