Teva Misses 2Q17 Estimates, Slashes FY17 View

Teva pills - photo - August 2017Lack of an experienced permanent CEO continues to haunt the world’s largest drug maker Teva Pharmaceutical Industries Ltd (NYSE: TEVA), which reported a decline in the fiscal 2017 second-quarter results compared to the second-quarter of 2016. The company also missed the earnings and revenue Consensus estimates of analysts. Considering the planned job cuts, retreat from 45 markets, trimmed FY17 outlook, and the dividend cut, we anticipate the stock to remain bearish in the short-term.

The Israel-based pharmaceutical company reported second-quarter GAAP net loss of $6.035 billion, or $5.94 per share, on revenues of $5.69 billion, compared with a GAAP net profit of $188 million, or $0.20 per share, on revenues of $5.04 billion. Teva took a goodwill impairment charge of $6.035 billion for the quarter.

Excluding charges, 2Q17 non-GAAP net income of $1.035 billion, or $1.02 per share, was lower than $1.228 billion, or $1.25 per share, in 2Q16. The Street Consensus was earnings of $1.06 per share on revenues of $5.85 billion.

Teva stated that its margins were under pressure as US customers demanded rock bottom prices for its generic drugs. Still, the company managed to reach a deal with McKesson Corp and Wal-Mart during the quarter.

Teva’s blockbuster, multiple sclerosis drug Copaxone recorded 10% y-o-y decline in revenue to $1.02 billion. The contribution of the drug to the overall revenue declined to 18%, from 23% last year.

In order to pay back debt of $5 billion in 2017, Teva, which has a market capitalization of $33.6 billion and debt of $35.1 billion, slashed its quarterly dividend to $0.085 per share, from $0.34. The company also has plans to divest its global women’s health and European cancer (& pain-treatment) divisions. The company is hopeful of realising $2 billion from asset sales, as against $1 billion anticipated earlier.

To return back to growth path, Teva is also implementing a restructuring program, which includes a plan to trim the employee count by 5,000. The company stated that it would exceed its objective and bring down the employee count by about 7,000 at the end of 2017. The manufacturer of Amoxicillin is also planning to shut down or divest 15 plants by the end of 2018. Teva also raised the cost reduction target to $1.60 billion, from $1.50 billion announced in May.

Considering the headwinds, Teva slashed its FY17 earnings outlook to $4.30 to $4.50 per share, from $4.90 to $5.30 per share guidance issued in January. The company also trimmed its revenue expectations to a range of $22.80 billion to $23.20 billion, from the prior outlook range of $23.8 billion to $24.5 billion. Thus, poor quarterly performance, increasing competition, lower margins, and downwardly revised FY17 outlook is expected to keep Teva bearish.

The stock is facing resistance at 17.50, as shown in the price chart below. The MACD indicator is making new lows below the zero line. That indicates bearishness in the scrip. So, technically, the stock is expected to go down to the next major support level of 13.10.

Teva - Technical Analysis - 28th August 2017

A put option is preferred for investment at this point in time. We would look for a strike price of about $17 and a date around September 4th for option expiry.

Disclaimer: The trading analysis offered here is our opinion. It is not provided as trading advice, merely an indication of our trading plan. We cannot guarantee success and we encourage traders to incorporate a strong money management strategy to limit losses. Please use this article as part of your own research before formulating strategies prior to trading.