Teva Vs Mylan: Wells Fargo Weighs In

The past year has been a rollercoaster ride for Teva Pharmaceutical Industries Ltd (ADR) TEVA and its investors. But even with the stock down 48.6 percent in the past year, investors may have more downside ahead in 2018, according to Wells Fargo. 

The Analyst

Wells Fargo analyst David Maris downgraded Teva from Market Perform to Underperform and raised the price target from $12 to $17.

The Thesis

The market got it right when Teva shares initially tanked following major guidance and dividend cuts last year, Maris said in a note. (See the analyst's track record here.) 

But the stock has inexplicably risen roughly 80 percent from its 2017 lows, and Maris said there’s no fundamental justification for the move. In the downgrade note, Maris said dip buyers are misguided.

“We expect other generic Copaxones will emerge in 2018, pricing pressures will remain and Teva’s debt will be downgraded, and as such, we think the recent rally is a good time to sell shares and reassess things after Teva provides its 2018 update Feb. 8, 2018," the analyst said. 

In addition to the downgrade, Maris reduced his 2018 EPS estimate for Teva from $2.86 to $2.68, significantly lower than $3 consensus. The new estimates comes after Teva announced $3 billion in cost cuts over the next several years. Maris said he is not optimistic that these costs cuts and layoffs will have a meaningful impact on Teva’s bottom line given the company's number of fixed costs. 

While Teva may look like a better value than competitor Mylan NV MYL, Maris said Teva's long list of challenges and its massive debt load make Mylan a better play today. 

Price Action

Teva stock was down more than 2 percent at the time of publication Friday afternoon. 

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