Barclays: Teva reshuffle hits morale

Barclays says that Jeremy Levin remained popular with Tevas rank-and-file and this will be destabilizing to morale.

Barclays Capital says that third quarter results published by Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) were reasonable, and that the selloff in shares probably represents investor disappointment with the abrupt resignation by CEO Jeremy Levin - an executive popular with rank-and-file investors. Barclays reiterated its "Neutral" recommendation for the share with a target price of $42.

Barclays analysts Douglas Tsao and Ann Trimble say, "After Wednesdays selloff of shares, Teva reiterated its view that Levins departure wasnt a matter of 'strategy', but simply differences in how to execute. While Levin perhaps left the roadmap behind, as well as some of his key lieutenants, such as R&D Head Michael Hayden, we think thats easier said than done. Even though Levins popularity with some investors waned given frustrations over the pace of change during his 15-month tenure, we believe he remained popular with Tevas rank-and-file and this will be destabilizing to morale. Moreover, while the company insisted it would continue to pursue business development, we think deals will be greeted with a measure of skepticism without Levins imprimatur. While we recognize its 'darkest just before dawn,' we dont believe the upside potential is sufficient for us to change our investment thesis."

Tsao and Trimble add that Teva faces both tax and Copaxone troubles ahead. Changes to Israel tax rates, coupled with a generic Copaxone entry in 2014, could lead to a 20% tax rate as soon as 2014. While tax increases were anticipated since both the changes to Israeli tax laws as well as Copaxones favorable tax status were known, the sharpness was certainly surprising (though arguably wise of management to set worse case expectations). We do not explicitly assume a generic Copaxone entry in 2014, though we think its increasingly likely, and we raise our tax rate to 17% in 2014, increasing to 19% in 2015."

Barclays forecasts that Teva will report earnings per share of $5.06 on $20.17 billion revenue in 2013, rising to earnings per share of $5.26 on $21.39 billion revenue in 2014.

Published by Globes [online], Israel business news - www.globes-online.com - on November 3, 2013

Copyright of Globes Publisher Itonut (1983) Ltd. 2013

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