For the second time in just three weeks, Credit Suisse has cut the target price for Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA). Credit Suisse has now lowered the price to $14 per share from $18, having cut the price from $20 just three weeks ago. Credit Suisse's recommendation remains unchanged at "Neutral." Teva's share price fell another 2.7% on NYSE yesterday to $11.54, reflecting a market cap of $12.6 billion.
Credit Suisses explains that it has cut the target price because of a "double legal risk," which is increasing pressure on the share. These two risks are the suit about generic price fixing in the US, and the suits about opioids. According to analyst Vamil Divan, concern about the results of the lawsuits has caused major pressure on Teva's share price in recent weeks and the pharmaceuticals company has seen its market cap lose $3 billion since May 10 and $8 billion since the start of February (when Credit Suisse's target price was $26).
Credit Suisse writes, The outcome of both cases and, more so, the potential liability Teva might face from each issue is difficult to predict, despite conversations we have had with the company and external legal counsel. We maintain our Neutral rating on TEVA shares until we have better visibility on these issues, while also waiting for better evidence of the path the company will take to return to top line growth."
The new target price of $14 is derived from a multiple of 10 for EV/EBITDA as per Credit Suisse's 2019 forecast. Divan says that lowering the target price reflects a rise in uncertainty and the legal risks even though the current price contains a significant part of that risk.
Divan believes that a "settlement on both fronts is likely," and adds, "To get a better sense of the potential legal liability Teva may face from ongoing litigation, we consulted with two legal experts who had previously been employed at the DOJ, including one who had also worked for a state attorney general. They both believe the various cases will ultimately end up in settlements. In the generic price fixing case they expect a settlement in the "hundreds of millions to $1billion" range and not the "many billions of dollars" that the state attorneys general are seeking, although Teva could bear a disproportionately larger amount of the legal burden because the AGs have called it out as the lead conspirators."
Regarding the opioids case, the experts had a tougher time assessing the potential economic damage, "given the numerous state lawsuits and multi-district litigation (MDL). They look to the Oklahoma case, the first case set for trial starting on May 28 to provide a framework for other lawsuits and the potential liability Teva (and J&J) could incur."
Published by Globes, Israel business news - en.globes.co.il - on May 23, 2019
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