Why Mizuho Securities Upgraded Teva Pharmaceutical to a ‘Buy’


Jan. 12 2018, Updated 10:05 a.m. ET

Teva stock upgraded by Mizuho Securities

On January 9, 2018, Mizuho Securities upgraded Teva Pharmaceutical Industries (TEVA) from a “neutral” to a “buy” rating. Mizuho is a leading Japanese investment banking firm. Analyst Irina Koffler at Mizuho raised the price target on TEVA stock from $16 to $23. The stock rose 1.4% that day, and the BLDRS Europe Select ADR ETF (ADRU) fell 0.28%. TEVA makes up 0.51% of ADRU’s total portfolio holdings.

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Rationale behind the stock upgrade

Koffler boosted Mizuho’s recommendation and price target for TEVA stock following the company’s business restructuring plan. The plan lays out a clear, detailed action plan to achieve $3 billion in cost-cutting, driven by its optimized generics business, more effective and simplified organizational structure, strategic R&D (research and development) investments, and a focus on its high-growth business segments.

Koffler calls Teva’s cost-cutting target of $3 billion over the next two years conservative and achievable. However, she lowered the 2018 revenue estimate for the company. She cited Teva’s major optimization plans for its generics business, which will include exiting the unprofitable businesses as the major causes for a near-term conservative guidance.

According to Koffler, Teva Pharmaceuticals is a less risky investment now due to the company’s expense discipline and a more moderate competitive environment for Teva’s leading MS (multiple sclerosis) drug Copaxone than previously expected.

Mizuho Securities made changes to its Teva model and improved its weighted average cost of capital estimate for the company from 9% to 8% and Teva’s terminal growth estimate from -3% to -2%. Koffler expects the decline in Teva’s US generic business to be -10%.

As of January 11, 2018, Mizuho Securities has a “buy” rating for some of the other companies in the healthcare sector, including Hologic (HOLX), NuVasive (NUVA), and Boston Scientific (BSX).


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