Summary
- Teva's stock has reached multi-year lows and can't find steady support after the decision has been made to settle the first opioid case.
- There is a distant probability that the company may declare bankruptcy in the face of the opioid charges. However, we think this small probability has disproportionally affected the stock.
- Although we think management made a mistake by settling the case, we remain bullish on the stock and think it will rebound.
Teva's (TEVA) stock performance has been devastating in the last couple of months. The potential legal liabilities have crippled the stock and sent it to the pre-bankruptcy state.
We think that a simple difference in the perceptions of legal systems (Common Law vs. Civil Law) led to overblown fears and sell-offs. Once the misunderstanding clouds clear, we expect the stock to rebound.
Operating Status Quo
If we put aside the legal actions against Teva and think about the company's performance from the operational point of view, Teva has fulfilled all the tactical goals that the CEO set up upon joining the company:
- Generic launches
- Cost reduction program
- Debt reduction
- Brand launches
- 2019 financial outlook (reaffirmed)
One of the most salient concerns was the generic price stabilization - and this was confirmed by the CEO during the latest earnings call.
So, operationally speaking, Teva is doing well. But the sentiment about the stock has changed as it has lost half of its value during the past couple of months, essentially erasing ~$10B value from its capitalization:
Data by YCharts
