Morgan Stanley downgrades Teva

Teva photo: Tamar Matsafi

Analyst David Risinger's new price target implies a further 20% drop in Teva's share price.

Investment bank Morgan Stanley has cut its recommendation and price target for Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA), following the collapse in the share price in the past couple of sessions. The recommendation is downgraded from Equal-weight to Underweight, and the price target is down to $16, from a previous $36. The new price target implies a 20% further drop in Teva's share price even after the loss of a third of the company's market cap in the past few days.

Today too, in pre-market trading on Wall Street, Teva's share price is falling, which is liable to take it below $20, just a few days after it dropped below $30.

Several analysts have downgraded their recommendations and/or price targets for Teva in the past few days, among them those of Goldman Sachs, Oppenheimer, and Credit Suisse. Today, they are joined by Morgan Stanley, which has cut its price target to a level Teva has not seen since 2003.

Analyst David Risinger writes, "We underappreciated the risk of generics pricing pressure to Teva's earnings and dividend, and we expect Teva to continue to underperform given overhangs. We believe that Teva's disappointing generic business performance will take more time to improve given a combination of the generic industry's intensifying secular challenges and Teva's own difficulty in executing on its pipeline.

"Core business generic headwinds and looming generic competition to Teva's top franchise (Copaxone) are likely to weigh on Teva's long-term earnings power and keep its leverage high through 2020 which will constrain Teva's ability to acquire future growth drivers."

Morgan Stanley is advising Teva in its attempt to sell its women's healthcare division as part of the steps being taken to reduce its debt.

On Thursday, immediately after Teva's weak quarterly financials were released, Morgan Stanley still maintained an Equal-weight recommendation for Teva with the price target of $36.

Risinger writes that the multiple at which Teva is traded is still too high even after the latest slide, being above the 5-year historical average of 8, which he notes "includes 2014-2015, during which time the generic industry enjoyed price inflation and Copaxone risk was further away."

Risinger gives a "bull case" price target of $31, which assumes no generic competition to Copaxone 40mg in 2018 and generics business earnings upside. On the other hand, his "bear case" price target, which assumes more severe generic competition to Copaxone and generics business downside, is $9.

After rising this morning, Teva's share price is now down a further 1% on the Tel Aviv Stock Exchange.

Published by Globes [online], Israel business news - www.globes-online.com - on August 7, 2017

© Copyright of Globes Publisher Itonut (1983) Ltd. 2017

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Teva photo: Tamar Matsafi
Teva photo: Tamar Matsafi
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