Merrill Lynch: 4 reasons to buy Teva in 2014

Merrill Lynch gives Teva a "Buy" recommendation with a target price of $48, compared with Wednesday's close of $40.03 on the NYSE.

Merrill Lynch has taken what it calls a "contrarian pick" for Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA), offering four reasons to buy the share in 2014. It gives Teva a "Buy" recommendation with a target price of $48, compared with Wednesday's close of $40.03 on the New York Stock Exchange, giving a market cap of $33.8 billion

Merrill Lynch analysts Gregg Gilbert, Sumant Kulkarni, and Gregory Fraser say, "Following a painful period of significant underperformance versus the market and the peer group, there are a few high-level things that give us hope that Teva shares could begin to recover in 2014. First, investor sentiment is about as poor as we have seen for anything and we see the stock as unsustainably inexpensive; in our experience good things tend to eventually happen when stocks are valued this way, and it is usually difficult to lay out a predictable "catalyst path" that gets things going.

"Second, we think a decision will be made on a new CEO at some point soon, and in our prior analysis "new CEO" stories often work. Third, we shift in 2014 to seeing the actual effect of Copaxone generic competition as opposed to just worrying in recent years about the potential effect (i.e. certainty is better than worrying about how bad things might be). And fourth, we do believe that Teva will do its best to create more transparency into its financials, which may be viewed positively even if the 2014 outlook (to be provided on December 10) is below the current sell-side consensus. On this front, we believe Teva would be best served to go out of its way to under-promise to the degree that no investor could view the outlook as anything but conservative."

Merrill Lynch predicts that Teva's earnings per share will fall 5.2% from $5 in 2013 to $4.74 in 2014, below the market consensus, and that its revenue will fall 1.5% from $20.5 billion in 2013 to $19.8 billion in 2014.

Published by Globes [online], Israel business news - www.globes-online.com - on December 5, 2013

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