Leerink: Improving Fundamentals Drive Teva Upgrade

TEVA Pharmaceutical Industries TEVA's fundamentals have substantially improved over the last few months, giving the stock a more balanced risk-reward profile, according to Leerink. 

The Analyst

Leerink analyst Ami Fadia upgraded TEVA Pharmaceutical from Underperform to Market Perform and raised the price target from $16 to $24.

Goldman Sachs analyst Jami Rubin reiterated a Buy rating on Teva with a $30 price target. The analyst added Teva to Goldman's Conviction List.

The Thesis

Leerink's Fadia considers a more stable pricing environment and improved indicators of FDA approval to be the pharma stock's main growth drivers.

Teva is well-positioned to exceed its 2018 sales target of $1.5 billion due to a slow switch to generic alternatives to its drugs, the analyst said. 

The recent approval of Ajovy puts the company second in the calcitonin gene-related peptide race, while Austedo continues to receive strong physician feedback and preference, Fadia said.

Leerink projects a 25-percent decline in U.S. generic sales, as well as an improvement in overall pricing trends and contributions from new products.

Goldman Sachs analyst Rubin said she's "puzzled" by Teva's underperformance.

“Various press reports (Bloomberg) and feedback from investors have attributed the weakness to the Street lowering estimates and concerns around the approval of Eli Lilly And Co LLY's CGRP, both of which we believe are not thesis-changing and well-understood.”

The analyst named the following as catalysts for Teva: 

• Management’s communication of 2018 headwinds, which will likely keep estimates in the guidance range.
• Teva's position in the market — despite competitive approvals. “We are encouraged by the fact that TEVA’s promotional activities for Ajovy will be competitive with a zero-copay offering through the end of 2019, slightly longer than LLY’s through the end of 3Q19 and Amgen, Inc. AMGN's, which is only for a few months post-launch.”
• The pharma company is set for a return to top-line growth and a delevering to 4x by 2020, giving the stock "meaningful upside," Rubin said. 

Price Action

Teva shares were down 0.14 percent at $21.51 at the time of publication Monday. 

Related Links:

A Long Road To Recovery For Teva Pharmaceuticals; Morgan Stanley Downgrades

Goldman Sachs: Now Is The Time To Get In On Teva's Turnaround