Teva Has Potential For 6% CAGR Ahead, UBS Says In Upgrade

Teva Pharmaceutical Industries Ltd (NYSE: TEVA) stock is down 73 percent from its 2015 peak — and it's nearly struck bottom, with recovery just around the corner, in UBS' view. 

The Analyst

Analyst Navin Jacob upgraded Teva from Neutral to Buy and raised the price target from $23 to $24.

The Thesis

By Jacob’s account, the Street is overestimating Teva’s risk in paying down its debt and exaggerates the potential pain from cost-cutting measures.

UBS expects the latter to have no effect on sales, the analyst said in a Tuesday note. 

“Our detailed analysis of TEVA's costs (review of facility footprint, headcount sizing and R&D costs) not only supports management goals but also highlights potential peak savings of $3.6 billion." 

Jacob estimates a performance trough in 2019 followed by bottom-line compound annual growth of 6 percent over the following three years.

Throughout that term, the analyst forecast $3.6 billion in expense savings and expects Austedo, Ajovy and biosimilar products to offset $1.2 billion in Copaxone and ProAir erosion. Generics price erosion in the U.S. is expected to wane from 8 percent in 2019 to 5 percent in 2023, and Herceptin and Rituxan biosimilars are seen to offset remaining pressure, Jacob said. 

The factors should drive bottom-line stabilization and press leverage closer to 3x in 2022, according to UBS. 

Price Action

Teva shares were trading up 4.21 percent to $19.54 at the time of publication Wednesday. 

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