Teva Misses Q3 EPS Estimates, Issues Weak Q4, FY17 View

Teva scientist at lab - photo - November 2017The world’s largest generic drug maker Teva Pharmaceutical Industries Limited (NYSE: TEVA) reported a 52% rise in Q3 2017 GAAP net income, compared with last year. However, the adjusted earnings missed analysts’ estimates. The revenues were in line with Zacks Consensus estimates. Thus, the share price of Teva rallied to hit a high of $13.90 last week. However, considering the poor Q4 and FY17 earnings and revenue outlook issued by the company, we anticipate a downtrend to begin in the near-term future.

Aided mainly by other revenues, the Israel-based company reported a marginal increase in the third-quarter 2017 revenues to $5.61 billion, from $5.563 billion in the similar quarter last year. The revenues were in line with Zacks Consensus estimates. During the July-September quarter 2017, GAAP net income was $530 million, or $0.52 per share, an increase from $348 million, or $0.35 per share, in the year-ago quarter.

Excluding amortization of purchased intangible assets and restructuring expenses, among others, non-GAAP net income declined to $1.012 billion, or $1per share, in the recent quarter, from $1.364 billion, or $1.31 per share, in the prior-year period, and missed the Street estimates of $1.04 per share.

Segment wise, Generic medicines generated revenues of $3 billion, down 8% year-over-year.

Correspondingly, profit declined 37% y-o-y to $619 million in Q3 2017. Revenues from the US fell 9% to $1.2 billion in 3Q17 due to earlier-than-expected arrival of new generic drugs as a result of accelerated FDA approvals. The European revenues increased 6% to $985 million in the September quarter.

Specialty medicines revenues in the third quarter were marginally down by 1% to $2 billion. The profit generated by the Specialty medicines segment increased 5% to $1.20 billion. The US Specialty medicines revenues decreased 4% to $1.5 billion, while the European Specialty medicines revenues increased 10% to $447 million. Specialty medicines revenues declined due to poor sales (8% down y-o-y to $802 million) of Copaxone, a multiple sclerosis drug, in the US. Likewise, the sales of Azilect were $36 million, down 64% from last year, mainly due to the introduction of generic versions of the drug.

Oncology products revenues increased 12% to $302 million. The combined revenues of Bendeka and Treanda were $181 million, an increase of 21% from the similar quarter last year. Other revenues, mainly from contract manufacturing services and distribution of third-party products, increased to $569 million in the third quarter of 2017, from $256 million in the prior-year’s similar quarter.

Cash flow from operations declined to $1.1 billion in the September quarter, from $1.5 billion in the year-ago period. Similarly, free cash flow was $0.9 billion, compared with $1.2 billion last year.

Looking ahead, the company expects non-GAAP earnings per share in the range of $0.70 to $0.80 on revenues of between $5.3 billion and $5.4 billion. The Wall Street analysts anticipate earnings of $1.07 per share on revenues of $5.69 billion in the fourth-quarter.

For FY17, Teva anticipates non-GAAP earnings per share in the range of $3.77 to $3.87 on revenues of between $22.20 billion and $22.3 billion. Previously, the company expected annual non-GAAP earnings per share in the range of $4.30 to $4.50 on revenues of between $22.8 billion and $23.2 billion. The Street analysts are looking for earnings of $4.19 per share on revenues of $22.62 billion. Thus, weak Q3 non-GAAP earnings, decline in the sales of Copaxone, and poor Q4 and FY17 outlook is expected to turn Teva bearish.

Technically, the stock is facing resistance at 13.80. The stochastic oscillator is also forming a negative divergence with the price. That indicates a weakness in the stock.

Teva - Technical Analysis - 27th November 2017

In order to gain from the downtrend, we may purchase a put option with a weekly expiry period. However, to proceed further, the stock should be trading near $13.60 in the NYSE.

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.