Credit Suisse Stays Sidelined On Teva: 'Our Growth Expectations Are Below That Of The Company'

Teva Pharmaceutical Industries Ltd TEVA reported disappointing fourth-quarter earnings Wednesday before the market open, sending its shares down about 8 percent.

The Analyst

Credit Suisse analyst Vamil Divan maintained a Market Perform rating and lowered the price target for Teva shares from $26 to $20.

The Thesis

Teva's first-time 2019 guidance was below expectations across many metrics such as revenue, EBITDA and EPS, Divan said in a Wednesday note.

The biggest contributors to the North American generics business were generic Sensipar, Cialis, Concerta and Cubicin, the analyst said. 

Teva should continue to benefit from these products as well as the potential new launches of generic Restasis, Nuvaring and Forteo this year, Divan said. 

Notwithstanding the uncertainty surrounding the timing of approval for these products, Teva sees stabilization of the North American generics business at $1 billion per quarter, the anlayst said. 

The 2019 product level guidance for Copaxone, Ajovy and Austedo was in-line with Credit Suisse's expectations.

Teva also guided to over 27-percent operating margins, a cash-to-earnings ratio of more than 80 percent and net debt-EBITDA at more than 3x within three to five years, Divan said. 

"Although we think the sharp sell-off may be somewhat overdone and 2019 guidance could prove to be conservative, we maintain our Neutral rating as the focus shifts from a restructuring story to a growth one where our growth expectations are below that of the company." 

Teva's ability to return to single-digit top-line growth in 2020 hinges on new product launches such Ajovy and biosimilar Rituxan later this year, along with a better-than-expected uptake of Austedo, the analyst said. 

Credit Suisse estimates flattish growth in 2020 followed by low-single digit sales growth in 2021 and 2022.

The Price Action

Teva shares were adding to Wednesday's losses and were down 2.1 percent to $17.25 at last check Thursday.

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