For Teva Pharmaceuticals, No Recovery In Sight, Says Analyst

Teva Pharmaceutical Industries Ltd (ADR) TEVA's third quarter earnings report disappointed investors, as it included another reduction to its full year 2017 earnings per share and revenue outlook.

The Analyst

JPMorgan's Chris Schott downgraded Teva's stock rating from Neutral to Underweight with an unchanged $11 price target.

The Thesis

The road to Teva's recovery will be long, as there is no "clear fundamental inflection in sight," Schott sad in the downgrade note. (See Schott's track record here.)

Teva's ongoing woes include the following, Schott said:

• Challenges in the U.S. generic business, which is unlikely to grow until 2019.
• Management already pursued a cost-cutting plan, and the opportunities for incremental expense reductions are limited. 
• Competition for Copaxone will worsen in 2018. 
• Profitability erosion could occur in 2018 and 2019 as the company reallocates a portion of Copaxone operating expenditure to the Austedo and CGRP launches.

Teva does have some opportunities to capitalize ahead, including the normalization of costs with non-Copaxone brands that can generate more than $500 million in incremental EBITDA, the analyst said. In addition,Teva's new CEO Kare Schulz brings the necessary experience skills to execute on restructuring opportunities over the years, according to JPMorgan.

The Israeli pharma company lacks the financial flexibility to pursue any new strategic plans, Schott said. 

There are no "quick fixes" available for Teva and the stock is "fairly valued," even though some of its peers are trading at a "robust" valuation, the analyst said. 

Price Action

Shares of Teva were trading lower by more than 1 percent Monday morning and are down nearly 70 percent since the start of 2017.

Related Links:

Analyst Eats 'Some Humble Pie,' Says Teva Needs To Deliver On Greater Visibility In Coming Months

Why Is Teva Falling? Competition

Photo courtesy of Teva Pharmaceuticals.