Teva Pharmaceuticals Hit With A Slew Of Downgrades Following Guidance Revision

Shares of
Teva Pharmaceutical Industries Ltd (ADR)TEVA
hit a new 52-week low of $37.25 on Tuesday after the company reported its third-quarter results and provided a concerning outlook for the full year given
some concerns
over its specialty drugs.

The stock rebounded slightly on Wednesday although Wall Street analysts were loud with their downgrades.

Barclays: Teva Needs To Execute In 2017

Douglas Tsao of Barclays commented in a research note that while Teva holds a unique position and scale within the evolving generics landscape, it needs to execute on key product launches in 2017 — and thrive in the "fragile-at-best pricing environment."

Tsao noted that Teva's pipeline delays is problematic because price erosion intensified in the third quarter to 7 percent, which is 2 percentage points ahead of the company's own expectations.

Looking forward, the timing on Teva's generic pipeline remains the key question, especially given the company's need for $500 million to $600 million in launches per year to achieve a mid-single digit growth.

Bottom line, Teva's outlook has come down, but this is arguably a positive as the stock's valuation looks "tempting." The analyst further suggested that investors should become more aggressive in the stock when management's confidence on pricing and launches are well communicated.

Shares are Equal Weight rated with an unchanged $46 price target.

Jefferies: Downgrading To Hold

David Steinberg of Jefferies commented in a research note that his view on Teva has now changed.

Steinberg argued that Teva's downward revised guidance for the fourth quarter implies continued weakness in 2017. In fact, the analyst suggested there is now "little over the next year to hang one's hat on."

Meanwhile, Teva faces heightened patent risk to its most important and profitable brand, Copaxone and the likelihood for a generic equivalent is increasing.

Coupled with Teva's high debt and few near-term value creating pipeline events, it is hard for the analyst to call for out-performance.

Shares were downgraded to Hold from Buy with a price target lowered to $40 from a previous $69.

BTIG: Downgraded To Neutral

Timothy Chiang of BTIG downgraded Teva to Neutral from Buy with no assigned price target from a previous $75.

The analyst cited three reasons to justify the downgrade:

    1. Poor visibility on near term revenue growth drivers within generic drugs.
    2. A large debt load of $36.9 billion, which implies a 5x debt/ebitda ratio and leaves little margin for any error.
    3. The likelihood that Copaxone will see a generic entry next year.

Chiang also cautioned investors that while Teva's stock appears to be inexpensive on a forward PE multiple basis of 7.4x on an EV/EBITDA multiple, the stock is trading at 10x the analyst's CY16 EBITDA estimate, which is in line with the specialty pharma group.

Credit Suisse: Bullish On The Longer-Term Picture

Vamil Divan of Credit Suisse commented in a research report that Teva faces company-specific and industry-wide issues which will impact the company's operations in the coming quarters. The analyst also expects limited new money flowing into the company until management could provide further clarity on its 2017 outlook and beyond.

Nevertheless, the analyst's bull case model assumes a price target of $67 while the bear case assumes a price target of $33. As such, investors are faced with an attractive risk to reward profile at current levels.

The analyst's base case scenario implies an Outperform rating and $47 price target and also factors in two competitors launching a generic version of Copaxone in early 2017.

Elsewhere On The Street

Analysts at Morgan Stanley downgraded Teva to Equal Weight from Overweight with a price target lowered to $42 from a previous $63.

Posted In: CopaxoneDavid SteinbergDouglas Tsaodrug stocksdrugsGeneric drugsJefferiestevaTEVA PHARMACEUTICALSTimothy ChiangVamil DivanAnalyst ColorBiotechEarningsNewsGuidanceDowngradesAnalyst RatingsGeneral