Teva’s share price plunged
Oppenheimer believes that contrary to the recent trend among analysts, Teva is raising its recommendation for the Teva share. The current recommendation is “over-yield” versus a previous “market yield” recommendation, although the target price drops from $ 17 to $ 12, still a 38.7% premium on the current price.
“We believe that business fundamentals continue to improve and that management performance in the operational context is in line with expectations, but we recognize that legal uncertainty may continue to weigh on the stock and update our model to reflect the potential damage,” analyst Esther Ragabello said.
Oppenheimer estimates, after consultation with legal experts, that Teva’s exposure to opioid-related procedures is $ 500-700 million (we note that the amount is lower than estimates published by other bodies in recent days), while its exposure to the generic price adjustment claim may be significantly higher. Oppenheimer estimates that Teva’s balance sheet can absorb an average of $ 400 million a year in this regard.
“Despite the legal issues, we are optimistic that the company is in a position to return to earnings growth and value creation, despite pressure on the revenue line,” Oppenheimer’s model says. “We are confident that Teva will meet its cost-cutting targets this year, and we believe that the legal cloud will be alleviated by the beginning of 2020 and investors will focus on operational and financial issues.”
In the legal context, “our legal expert believes that the $ 85 million compromise in the opioids in Oklahoma is a good deal, and he believes that Teva’s exposure to the MDL trial (which will be held in Cleveland since October) may be lower than that of pharmaceutical companies Because Teva has not actively marketed its generic products and believes generic manufacturers will want to differentiate themselves from the original pharmaceutical manufacturers with higher exposure, “the analyst writes.
In the context of the price adjustment claim, she writes that Teva may face fines of “several billion dollars” according to the formula of a threefold increase in damages. “Although the amount can be significant, our expert estimates that in the trial the defendants’ ability to pay will be examined and will allow them to pay in installments over time,” the analyst adds. In its opinion, Teva is expected to refinance debt in the near future, to the debt of 2021 onwards, when it estimates that the debt will be recycled at theoretical interest of 8% so that future payments will increase. “In our opinion, Teva will be able to reduce its leverage below 3 to 2024,” she adds.