Following the sharp drop in Teva Pharmaceutical Industries Ltd.'s (NYSE: TEVA; TASE: TEVA) share price in the past few months, the overall 48% drop from the peak price in July 2015 and the slashing of the company's target price by analysts abroad (although most of them have maintained "Buy" recommendations), the company has started meeting with analysts to discuss its position. e Citi investment bank published its insights following the meeting. Analysts Liav Abraham, Eugene Kim and Rakesh Ahuja say that the meeting "was confirmatory of our view regarding the relative strength of TEVA’s generics business." Nevertheless, they said that Teva's 2017 guidance "is dependent on a combination of pricing stability and new product launches, and near-term uncertainties pertaining to both of these issues is likely to dominate the debate over the near term, in the absence of definitive 2017e guidance, in our view."
The analysts says that the talk focused mainly on developments in generics, mainly in relation to pricing. "Management reiterated its confidence in generics business... While pricing in the quarter was negatively affected by incremental competition on products divested as part of the Teva/Actavis generics acquisition, pricing dynamics for the remainder of the business appear stable," they said.
As for margins, "Management commented on the potential for higher synergies from the Actavis generics transaction…in addition to ongoing evaluation of potential efficiency measures across the organization." This has led Citi to estimate that operating profit will rise from 27%-30% to 33% in three years and 35% in five years.
As for debt, "The company’s aim is to reach a 3.5x debt/ EBITDA level within 18 months [before considering] additional options for capital allocation, such as buybacks. Management also confirmed that it is currently in the process of gradually selling its Mylan stake…with the proceeds used to aid in debt paydown."
In the meeting, Teva also commented on the US Department of Justice collusion probe, saying that both Teva and Actavis carried out an internal investigation, with no evidence of collusion
After the meeting, Citi set a price target of $75 for Teva, almost double the current share price.
Published by Globes [online], Israel business news - www.globes-online.com - on November 20, 2016
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