UBS anaysts have cut their target price for the share of Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) for the third time in less than six months. UBS's new target price is $8, $4 less than the previous target price set in May and far lower than the $22 target price set by UBS in March. Early in the year, UBS upgraded its recommendation for Teva's share from "Neutral" to "Buy," after recommending "Neutral" for many years, writing that the share price was "too cheap to ignore." The recommendation was downgraded three months ago, however, following lawsuits on price fixing and opioid sales to which Teva is exposed.
UBS's new $8 target price, which is 19% above the current share price on Wall Street, follows a change in model by analyst Navin Jacob. Jacob explains that he now uses the EV/EBITDA multiple, instead of the profit multiple, in order to take into account concern about reducing the debt and uncertainty about short-term cash flow. Jacob believes that rescheduling $3 billion in debt by Teva will increase its interest expenses by $150 million in 2020 and by $225 million in 2021.
On Teva's legal entanglements, Jacobs writes that these are still a burden on the share, and mentions the $650 million provision in the second quarter for proceedings involving opioids. UBS therefore believes that this is the minimum amount that Teva will have to pay in order to dispose of the affair, while the maximum amount is $4.25 billion.
Two scenarios and positive development
UBS gives two scenarios for Teva's share: an upside, in which the target price reaches $17, and a downside in which the target price drops to $1. The assumptions for the upside are a more moderate fall in Copaxone sales and higher growth in sales of original drugs Ajovy and Austedo, plus lower than expected legal expenses. The downside assumes that sales of Ajovy and Austedo will be lower than expected, a steeper fall in generic drug prices in North America, a steeper fall in Copaxone sales, and larger than expected legal expenses.
Teva, managed by CEO Kare Schultz, has a current market cap of $7.05 billion on the New York Stock Exchange. The company today announced that its generic version of Mylan's original EpiPen product, a syringe designed for treatment of life-threatening allergies, was available. Teva's version will be available in most pharmacies in the US at $300 for a package of two. A shortage of the drug was recently reported in the US, so Teva's announcement is good news for both patients and Teva's shareholders.
Published by Globes, Israel business news - en.globes.co.il - on August 20, 2019
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