Teva Pharmaceutical Industries Ltd (ADR) (TEVA) Gets a Price Target Reduction: Can It Hold Its Ground Short-Term?

Mizuho's Irina Rivkind Koffler says if TEVA can stabilize its business, it could evade a downgrade to high yield.


Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) has experienced a volatile month after initially shedding 19% in value once the Street got word of an underwhelming third quarter performance and a pullback in 2017 guide.

Mizuho analyst Irina Rivkind Koffler has been left shaking her head from the sidelines, calling the earnings showcase “disappointing,” but nonetheless anticipating the stock will “hold its ground (or slightly recover).”

Can Teva stay away from downgrading to high yield? “We believe that Teva may successfully navigate 2018,” writes the analyst, but down the line is less certain.

In reaction to the rocky quarter, the analyst maintains a Neutral rating on TEVA stock while dialing back the price target from $15 to $12, which implies a just under 7% downside from current levels. (To watch Koffler’s track record, click here)

With visibility into the debt repayment next year, the analyst expects Teva’s fourth quarter cash flow to be $900 million, with a probable roughly $3.8 billion added next year. Koffler points to three key first-to-file (FTF) launches of Viread, Reyataz, and Viagra to bring a $200 million contribution to Teva here. Additionally, a Working Capital dispute resolution with Allergan anticipated in the first quarter of next year could add another $0.4 billion to $1.4 billion in cash to Teva’s table.

Koffler continues, “Other asset sales such as EU Pain/Oncology that may add another $1.0B while we await approximately $500M from the remaining women’s health assets (we model $2.3B). As long as there is only one Copaxone generic competitor and delays to the European generic launch, we think Teva can manage the decline of this asset and rapidly deploy cash to delevering.”

However, the analyst projects “aggressive” revenue dips with steeper-than-anticipated cost cuts to plague the Israeli pharma giant, between cutthroat generics pricing pressure and asset sales coupled with high Copaxone international deterioration starting in 2019. “However, we also assume phased-in 20% cuts to generic SG&A and R&D spend in 2018, and also lowered 2018 branded spending by 30% because we assume unit consolidation and divestiture of assets like Respiratory, and Oncology to repay 2019 maturities. We present a hypothetical model for debt repayment and EBITDA decline over time in our note,” Koffler underscores.

Looking ahead, the analyst concludes with caution: “We don’t know what may happen longer-term but we expect Teva to pursue a transformative deal to stabilize its core generic business.”

Most on the Street are torn on the woes of this biotech player’s struggles, as TipRanks analytics demonstrate 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. With a return potential of nearly 17%, the stock’s consensus target price stands at $14.93.

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