In contrast to the trend among analysts in recent days, Oppenheimer believes that the current low point of Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) share price constitutes a buying opportunity. Openheimer changed its recommendation for Teva's share from "Perform" to "Outperform," while lowering its target price from $17 to $12, 38.7% higher than Teva's closing price yesterday of $8.64 (32.3% higher than Teva's $9.07 share price as of web posting today, following a 5.22% rise).
Analyst Esther Rajavelu writes, "We believe business fundamentals continue to improve and management’s execution on the operational front is generally in line with expectations. However, we acknowledge legal uncertainties could remain an overhang and update our model to reflect theoretical legal penalties…"
After consulting with legal experts, Oppenheimer estimates Teva's exposure to legal proceedings involving opioids at $500-700 million, substantially less than the estimates published by other concerns in recent days. Oppenheimer says that Teva's liability for fixing prices of generic products could be substantially higher than that, amounting to $400 million annually.
"Despite current legal issues facing TEVA, we are optimistic the company may be in a position to return to earnings growth and value creation despite continued pressure on the top line," Oppenheimer writes. "We are confident TEVA could meet its cost-cutting goals by year-end, and manage leverage with existing cash/CFO. We anticipate legal overhang could alleviate by early 2020 and a shift in investor focus to TEVA's operational and financial metrics."
Regarding Teva's legal problems, Rajavelu writes, "According to our legal expert, the $85M settlement in Oklahoma is 'a good deal,' and he believes TEVA's liability in the multi-district litigation (MDL) (which will take place starting in October, S.H.-V.) could be lower than other branded drug manufacturers', as TEVA did not actively promote its generic products. He believes generic manufacturers should be motivated to separate themselves from their branded peers that may have higher exposure."
Where the price-fixing allegations are concerned, Teva is liable to suffer several billion dollars in penalties, according to Rajavelu, based on a formula of three times the damage caused. "While the headline amount may be substantial, our legal expert also indicates courts will review defendants' ability to pay and allow for long-term repayment options," she adds.
Oppenheimer predicts that Teva will soon reschedule its debt to 2021 and later, and says that the debt will be recycled at a theoretical interest rate of 8%, which will increase its future payments. "We estimate TEVA could get to its target leverage ratio of ≤3x by 2024 vs. 2023," Rajavelu explains.
Published by Globes, Israel business news - en.globes.co.il - on June 3, 2019
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