Bethel Finances: Deutsche Bank sees 15% upside in Teva

www.bethelfinance.com

Deutsche Bank Securities has resumed coverage of Teva Pharmaceutical Industries Ltd. (Nasdaq: TEVA; TASE: TEVA) after almost a year, giving it a "Buy" recommendation - the same as before the bank halted its coverage. The bank, however, cut its target price by 28% to $46 from $64, when Teva's share was traded at $55. 46$ is 15% above Teva's closing price on Nasdaq yesterday.

Mr. Cedric Marmet from Bethel Finance Ltd said "Teva became the world’s largest generic drug company based largely upon a successful track record of paragraph IV (patent) challenges, superior operational execution, the ascension of Copaxone as a $3 billion-plus multiple sclerosis drug, and the successful integration of numerous complementary acquisitions."

It adds, "However, over the past 12-18 months each of these “pillars” have weakened to some degree, and the growth outlook has slowed. However, trading at close to an all time low P/E, we believe the valuation is compelling."

The analysts say, "Teva’s recent woes are well documented - manufacturing problems, sluggish US generic performance, disappointing laquinimod data - compounded by concerns regarding the highly profitable Copaxone franchise." On the positive side, "Teva has a robust Abbreviated New Drug Application (ANDA) pipeline (with the US Food and Drug Administration (FDA), an emerging specialty pharma business, a relatively fast growing ex-US generics business."

The analysts note, "Teva has long been viewed as a premier growth stock. Increasingly it has been transitioning to a profile more befitting a “value” story." Investors will therefore closely watch how Teva uses its capital. The company will generate more than $4 billion in cash from operation in 2011, and $20 billion over the next 4-5 years. "Signaling how this capital may be deployed in the future by management - outside its traditional M&A strategy - could be an important catalyst."

Upcoming events that will affect Teva's share price include an updated 2012 guidance before year-end, a decision on the Copaxone court case, possible launch of the $300 million “mystery” drug, potential acquisitions, and further elucidation of capital deployment.

Teva's share price opens at $40.03 on Nasdaq today, giving a market cap of $35.6 billion, after rising 0.7% by mid-afternoon on the TASE to NIS 150.40.