For more than six years, UBS analysts have maintained a neutral stance on Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA), but today they have come off the fence and proclaimed that "Teva is too cheap to ignore." UBS analyst Navin Jacob gives the Israeli pharmaceutical company a 'Buy' recommendation with a target price of $24, 28% above the closing price on Wall Street last night. Teva's share price is currently up 4.64% on the NYSE at $19.62, giving a market cap of $21.4 billion.
Jacob feels that the capital market overestimates Teva's debt risk and according to UBS's calculations Teva has over $2 billion more than required to pay back the debt. "Teva's share price has fallen 60%- over the past five years after acquiring Actavis at the wrong time and taking a large loan ($29 billion debt to EBITDA ratio of 5) and facing unprecedented pressure on prices in the US generics market as the company got caught up in generic competition and the erosion of Copaxone," wrote Jacob.
In our opinion, from 2020 Teva will present annual average growth of 6% in net profit per share. This is due to its pipeline in the biosimilar sector and its Austedo and Ajovy branded drugs, for Chorea associated with Huntington's disease and migraine respectively. Jacob calculates that Teva will save $3.6 billion in annual costs in 2019 in the wake of its streamlining plan. "In 2020, when leverage will be close to 3 and net profit per share growth will stabilize, Teva should be trading at an historical multiple of 10, which reflects a premium of 50%." Jacob notes that Teva is currently trading at a multiple of 6 for 2020 profits.
Jacob estimates that over the next 12-18 months, the price of Teva's generic drugs will be eroded by a further 8%. These pressures will be partly offset with the help of launches for biosimilar products Herceptin and Rituxan in the second half of 2019.
Teva's branded drugs Copaxone for treating multiple sclerosis and the ProAir inhaler for breathing problems will see sales eroded by $1.2 billion between 2018 and 2021 and this will be partly offset by sales of the new branded drugs Austedo and Ajovy that will have $900 million in sales over this period.
The target price of $24 for Teva's share is based on annual sales of $1.1 billion for Ajovy in 2025 and annual sales of $898 million for Austedo.
Published by Globes, Israel business news - en.globes.co.il - on January 23, 2019
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