Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) released a grim second quarter print last Thursday, revealing that the management team had lowered guidance across the board for the year. Shareholders responded in a fury, sending the stock plummeting 13% on Friday, and another 4% this morning- with Teva investors gritting their teeth to see the stock hit its lowest point since 2003.
Analyst Gabrielle Zhou of Maxim is attributing this free fall to fierce competition, price erosion, and the pharmaceutical giant’s own launch delays and has adjusted her revenue prediction to fall in-line with company guidance.
The Teva team significantly cut guidance for 2017, taking non-GAAP EPS from $4.90-$5.30 down to $4.30-$4.50 and total revenues from $23.8 – $24.5 billion to $22.8 – $23.2 billion. Furthermore, the company closed the quarter with $35 billion in debt and $600 million in cash on hand. Zhou notes, “We have adjusted our revenues projections based on the new FY guidance. We lowered our estimates on generic revenues for 2017 and 2018, assuming higher competition in the generic business. As a result, our top-line revenue estimates are now $22.9B in 2017 and $23B in 2018. Non-GAAP EPS for 2017 is $4.35 on a 1,076M share basis.” When assessing the giant’s generic business, the analyst highlights, “In addition, Teva is still quite dependent on the 40mg Copaxone 40 which could go generic next year. All of this translated into reduced guidance and a significant dividend cut.”
Looking for the “silver lining,” Zhou points to possible alternatives for “cost reductions and potential non-core asset divestitures (potentially up to $2B gain) to pay down the debt”, as part of the company’s strategy to “stay focused on Teva’s core business.” While admitting that Teva has a number of tough short-term challenges to overcome, including hunting for a CEO, a search that has now been ongoing for 6 months, the analyst “continues to believe Teva’s long-term strategy will be more focused on high margin innovative therapies. The successful clinical results of fremanezumab and recent FDA approval on Austedo for chorea associated with Huntington’s disease could be catalysts to the company.”
In reaction, the analyst is maintaining a Hold on the stock while scrapping his prior price target of $35.00. (To view Zhou’s track record, click here.)
TipRanks analytics demonstrate TEVA as a Hold. Based on 13 analysts polled by TipRanks in the last 3 months, 1 is bullish, 1 is bearish and 11 are sidelined on Teva stock. The 12-month average price target stands at $29.90 marking a 45% upside from where the stock is currently trading.