Q3 results boost Teva's share price to near record


Citi: The market did not price the stability of Copaxone well enough.

Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) share price was up 3.6% at the end of last week, following the publication of the company's third quarter financial statements. The share's upward trend in recent months, following a long downtrend, has returned it to levels at which it was traded four years ago. The share is now only 2% from its high point in 2010 (adjusted for the dividends that have been distributed since then). The current $56.50 share price reflects a $48.3 billion market cap.

Managed by president and CEO Erez Vigodman, Teva last Thursday reported $5.06 billion in revenue and an $876 million net profit according to GAAP accounting rules, and a $1.1 billion profit according to non-GAAP accounting rules. The company also announced that it would extend its share buyback program to $3 billion and narrowed the range for its annual profit forecast in an upward direction. In a conference call, Teva expressed optimism on its chances of winning its court case involving multiple sclerosis treatment Copaxone, its flagship product. All of these developments played a role in the positive mood for the share.

Meanwhile, the Teva share has outstripped the target price of the analysts covering the company, who recommended "neutral" for the share. Most of the agencies covering Teva did not change their target price or recommendations after the financial statements were published. Deutsche Bank raised its target price by $1 to $64, while analysts Gregg Gilbert and Gregory Fraser cited the growth in the company's gross profit and its strong cash flow from activities.

The two analysts wrote that they continue to find the combination of a relatively low value, appealing dividend yield, management focus on return for investors, and potential for activity with added value in business development attractive, and reiterated their "Buy" recommendation.

Citi gave the same recommendation, with analyst Liav Abraham giving a target price of $70, writing that focus on performance pays off. She said that the market had not priced the stability of Copaxone well enough, and predicted that the proportion of patients shifting to a double dose (which is not exposed to potential generic competition in the short term) would reach 80% with time, compared with 57% at present.

Barclays' recommends "Market outperform" with a $70 target price, and analyst Douglas Tsao addressed the matter of mergers and acquisitions, writing that there had been some concern about the fact that Teva had not yet made a large-scale deal. He gave management credit for its patience in not being tempted by the mergers and acquisitions hysteria in the specialty drugs industry, while adjusting the company's foundations to enable it to integrate an acquisition.

Most recent acquisition causes drop in value

Other analysts retained their "Neutral" recommendation for the Teva share, including Mark Goodman from UBS Securities. He agreed that the quarter had been a good one, with a higher than expected gross profit, and estimated Copaxone's contribution to the company's $0.82 per share net profit at 62%. He estimated that Copaxone accounted for $14 of Teva's share price, while the rest of its business was worth $40 per share, giving a $54 target price, below the market price.

Bank of Jerusalem (TASE: JBNK) gave an even lower target price of $50. Analyst Jonathan Kreizman wrote that the quarter had been strong, and that the company's generic cost cutting program was beginning to show results. He stated, however, that the situation in the company's branded products, things were less reassuring. The company's next most significant product after Copaxone - Treanda - posted a 2% annualized decline. He commented that Teva was in a rebuilding process, and said that taking into account the wave of expected patent expirations in 2014 (Copaxone, Azilect, Nuvigil, Treanda, and ProAir), its collection of drugs to replace them was rather thin, offering a limited upside in comparison with the challenges.

At the same time, in an expanded report published by Teva last Thursday, the company provided an update for one of its smaller recent acquisitions. In 2013, Teva acquired US private respiratory drug company Therapeutx MicroDose for $40 million (with a possible rise to $125 million, subject to meeting milestones). The update states that during the third quarter, Teva had received negative results from Phase II trials of the company's MDT-637 product (for treating respiratory viruses). As a result, the company had reported a $102 million drop in value in its report.

Published by Globes [online], Israel business news - www.globes-online.com - on November 2, 2014

© Copyright of Globes Publisher Itonut (1983) Ltd. 2014

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