How Much Lower Will Teva Go?

Reports from Bloomberg that the district court judge in Oklahoma will not approve the $85-million opioid settlement with Teva Pharmaceuticals (NYSE:TEVA) sent the stock to another yearly low.

As valuations spiral lower, the market is daring value investors to pick at the stock at current levels. Just how much liabilities does Teva face and how will it manage its heavy debt obligations in the face of generic drug competition?

Teva needed to resolve its suit in Oklahoma, to set how much it owed to put the opioid settlement behind. Instead, uncertainties increased and added yet another worry for investors. Management has many crises to deal with in the near-term, so if Teva has more to pay in a settlement, its cash will run out quickly.

At the single-digit P/E, Teva stock is a clear value play but lacks any near-term catalysts. With the accelerating decline in Copaxone sales, due to generic competition, Teva needs strong initial sales from newly-launched products to slow declining quarterly revenue.

Teva has a large portfolio of generic drugs that the market is valuating at a discount. If litigation risks escalate, its potential for turning around the business over the next two to three years will not matter. Teva needs a fair settlement that does not bankrupt the firm. Once the uncertainty is lifted, the stock will stop falling