Persistent worries over the liabilities related to the opioid epidemic continue to weigh on shares of Teva Pharmaceuticals (NYSE:TEVA). The stock fell 14.5% last week and now has a valuation close to that of Bausch Health (TSX:BHC). Bausch still has a debt/equity of nine times while Teva’s is more manageable at two times. The market is punishing Teva on concerns over its potential liabilities ahead.
Teva has a strong management team with Kåre Schultz as its CEO. But the company rewarded the CEO with a $32.5-million compensation. This may sound expensive but the company is willing to pay top dollar for having him turn the company around. Since his hiring, he laid off 14,000 staff and cut $3 billion in costs.
Teva needs a few years to fix the underlying business. At current valuations (three times forward earnings), the stock looks worthwhile for speculating on. If Teva is cleared of all opioid litigation, then the chairman’s $2-million purchase of the stock will pay off.
Your Takeaway
Teva will continue to restructure its massive generics unit and generate positive cash flow. It has new products under development, like fremanezumab, for treating migraines. Short-term, the problems of the opioid liabilities will constrain the stock’s upside. So investors buying Teva stock need to hold for the long-term to get rewarded.
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