Teva's Legal Overhang Triggers UBS Downgrade, Near-Halving Of Price Target

Teva Pharmaceutical Industries Ltd TEVA shares have been under pressure since mid-May, when it was accused along with other generic companies for inflating the prices of generic drugs.

The Israeli drugmaker announced an $85-million settlement agreement Tuesday with the state of Oklahoma for its role in the U.S. opioid crisis. 

The Analyst

UBS analyst Navin Jacob downgraded Teva from Buy to Neutral and lowered the price target from $22 to $12.

The Thesis

Teva's potential litigation expenses tied to the opioid crisis and drug price fixing could more than quadruple what UBS previously estimated, Jacob said in the Tuesday downgrade note. (See his track record here.) 

The analyst projects later-than-expected launch timelines for Teva's generic pipeline assets.

The company's about-face in settling with Oklahoma after initially opposing a settlement has created increased uncertainty, Jacob said.

There could be downside to UBS' estimates, given the legal entanglements, he added.

UBS lowered the multiple from 8.5 times estimated EPS for 2020 to 6 times, at the low end of the historical range.

Jacob removed $4.1 billion from the equity value estimate to account for the potential litigation charge. 

The Price Action

After sliding 12.4 percent Tuesday, Teva shares were trading 1.26-percent higher at $9.64 at the time of publication Wednesday. 

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