3 Analysts Dissect Teva's Q4 Results

Teva Pharmaceutical Industries Ltd TEVA reported fourth-quarter sales and revenues that slightly exceeded estimates but issued a guarded outlook for 2020.

The Teva Analysts

BofA Securities analyst Jason Gerberry reiterated an Underperform rating on Teva and raised the price target from $8 to $11.

Raymond James analyst Elliot Wilbur reiterated an Outperform rating and $15 price target.

Oppenheimer analyst Esther Rajavelu reiterated an Outperform rating and increased the price target from $12 to $16.

Austedo Opportunity And Long-Term Targets Less Probable

Gerberry said upside is attributable to Teva suggesting an imminent Phase 3 data readout for Austedo in Tourette's syndrome, a large add-on indication not reflected in estimates, and updated 2023 financial targets, which suggest EBITDA about 11% above consensus.

However, the analyst remains bearish on the stock, given insufficiency of data to assign credit to Austedo in TS, a lack of sufficient growth drivers to support long-term targets and the opioid risk. The New York Attorney General case scheduled for March 20 is likely to be a key binary event.

Related Link: New York Opioid Case A Significant Risk For Pharma Stocks, Says Bearish BofA

Upside Scenario In Teva Likely Over Next 12-18 Months

Teva continues to move the chains on its long-term turnaround drive, Wilbur said, citing the better-than-expected results and the initial 2020 outlook. Armed with $974 million in free cash flow and expectation of FCF hitting $1.8 billion to $2.2 billion, the company is slowly regaining credibility.

Wilbur expects the company to return to at least modest growth in 2020 and beyond, given the turnaround seen in U.S. generics.

"While the company has been the victim of excessive likelihood assigned to opioid headline litigation events, with more opioid litigation settlement clarity emerging towards a positive outcome and its key brand assets – Austedo and Ajovy – continue to fill Copaxone void, we continue to see upside scenarios in Teva shares over the next 12-18 months given bottom in U.S. generics," Wilbur wrote in the note.

He attributed the bullish stance to favorable reward-to-risk, with a demonstrated stabilization and recovery in adjusted EBITDA levels.

Well Positioned To Manage Opioid Litigation-Related Payments

Oppenheimer is now more bullish on improving bottom line, helped by factors within management's control. However, Rajavelu remains cautious on top-line growth drivers, especially ahead of continued execution on new generic/biosimilar launches and pipeline maturity.

The stock is in for near-term volatility related to opioid litigation, according to the analyst. The adjusted price target reflects $4.4 billion in litigation-related cash flows over 10 years, including $400 million in 2020, and a 5% incremental litigation risk premium to its discount rate.

"We remain comfortable that TEVA is well positioned to manage these payments while continuing to delever," the analyst said.

TEVA Price Action

Teva's stock was sliding 4.2% to $12.88 at time of publication, reversing part of Wednesday's 9% gain.