Teva Pharmaceutical Industries Ltd (ADR) (TEVA): Still a Hard Pill to Swallow

This analyst isn’t ready to get bullish on TEVA. Here’s why.

Maxim analyst Jason Kolbert is out with a new research note on shares of Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA), after the Israel-based generic drug maker announced an offering of senior notes. The company intends to offer €1 billion in euro denominated notes and $2.25 billion in USD denominated notes. Teva plans to use the funds to repay $¥2.3 billion indebtedness under its $2.3 billion outstanding USD and Japanese Yen Term Loan Agreement as well as the $1.5 billion outstanding under its 1.4% Senior Notes Due in 2018.

Kolbert reiterates a Hold rating on TEVA shares, without providing a price target. (To watch Kolbert’s track record, click here)

Kolbert opined, “While we do not know the terms of the debt offering, in the time since the 2018 debt was issued, Teva has been downgraded to below investment grade by two of the big three credit agencies. With $32B in debt and only $1B in cash, we do not believe that Teva will receive favorable terms, and expect the interest rate on the new debt issues to be higher than the 1.4%-3.1% that they are paying off, which takes a bite out of free cash flow.”

The analyst concluded, “We see no need to change our Hold Rating. Teva continues to suffer from the loss of Copaxone and the problem is now compounded by debt that was recently downgraded to sub-investment grade. A new CEO is in place and “management has a plan” that over time could lead to a turnaround, but it won’t be easy. Pushing the debt back gives Teva more room to operate, but does so at a cost to cash flow.”

If we turn to the Street in general, we can see that the stock also has a Hold analyst consensus rating. In the last three months, Teva has received 5 buy, 11 hold and 4 sell ratings. These analysts have an average price target on the stock of $19.43. 

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