Most analysts covering Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) have not changed their recommendations for the company in the wake of its financial report for the third quarter of 2012. The market has taken a favorable view of the report, and Teva's share price rose 2.6% on the New York Stock Exchange on Thursday and Friday to $41.49, giving a market cap of $36.1 billion.
Teva reported $5 billion revenue for the third quarter, and a non-GAAP net profit of $1.1 billion. However, it also reported a GAAP-based net loss of $79 million, due to two big write-downs: one for a potential loss in a patent infringement case, and the second for the loss in value of drugs acquired through the acquisition of Cephalon in 2011.
Some analysts say that, despite beating the analysts' non-GAAP earnings per share consensus, the company still faces many challenges. All the analysts mention the strategic presentation that Teva will make on December 11, and they are waiting to see how new president and CEO Dr. Jeremy Levin discusses his plans for the company.
Leader analyst Sabina Podval says that the financial report was reasonable. "Although the company beat the analysts, this was mainly due to a sharp drop in R&D expenses, which we believe is temporary and not representative," she says. She adds, "Levin is sorting things out and cleaning his predecessor's desk," as seen in the two write-downs. She concludes that, despite efforts by Teva's new management, putting the company back on the path of stable growth and profits will take quite some time.
Bernstein Research analyst Ronny Gal also says that the financial report was reasonable, saying that it was not bad, but definitely not exciting. He favorably points to the over-the-counter drug market. Although Teva has not yet provided guidance for 2013, he believes that it will be a tough year, due to the absence of any blockbuster generic launches.
Gal emphasizes, however, that it is very difficult to predict Teva's profits, due to two major factors: BG-12, a rival of Teva's Copaxone treatment for multiple sclerosis; and the strong probability that Teva will cut its general and administrative expenses, as well production costs at its plants.
An unenthusiastic Goldman Sachs gives Teva a "Neutral" rating. Analysts note that Copaxone sales were strong, but that 2012 would be the peak year of sales for the drug. They favorably view management's comment that the company would focus on treatments for the central nervous and pulmonary systems.
However, Goldman Sachs also says that Teva did not buy back any shares during the third quarter. The analysts said that they support using Teva's cash to increase buy-backs of shares and/or for the distribution of dividends, in order to give investors a reason to hold onto shares. They said that there are better alternatives to Teva in the industry, such as Mylan Inc. (NYSE: MYL) and Watson Pharmaceuticals Inc. (NYSE: WPI).
Harel Finance analyst Steven Tepper says, "With the mediocre report behind us, the engines are revving up for the strategic conference." He says that Teva will focus on neurodegenerative diseases (such as multiple sclerosis), the pulmonary system, women's health, and, to some extent, cancer. He cut his target price for Teva from $55 to $52, reflecting a 25% premium on Friday's closing price.
UBS also gives Teva a $52 target price, saying that the third quarter was "OK", and that investors were waiting for the company's strategic conference.
Published by Globes [online], Israel business news - www.globes-online.com - on November 4, 2012
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