Got pills anyone?

Being a leader in generic drugs is supposed to be a good place when the entire world wants cheaper pharmaceuticals. That had been a great ride for Teva Pharmaceutical Industries Limited (NYSE: TEVA) up through 2015 as the world’s largest reported generic drug pharma stock, but then the wheels came off Teva’s cart. And no matter what the company tried, Teva’s stock didn’t bottom out until 2019. Then the stock stayed there in a trading band until the end of 2023. Now it seems like Teva is back after its shares have surged more than 50% year-to-date.

The question from Tactical Bulls is whether or not Teva Pharmaceuticals can still run higher. Chasing the stocks that have already won can be painful if you catch the top. It’s not generally a good strategy to only follow analysts on Wall Street. And making a decision to buy or sell should never be tied 100% to a single analyst report, even if the projected upside is huge. But what happens when you have a long-term battered stock that has gone nowhere for years that is 1) getting waves of analyst upgrades and 2) outperforming the market?

Tactical Bulls has tracked six recent analyst calls, one live call and within the last 60 days, pumping shares of Teva higher. This is no way translates into any guarantees or assurances that more gains will follow. It’s just hard to ignore when the analyst community turns into an analyst upgrade brigade.

THE “LIVE” UPGRADE

The independent research firm Argus, which makes no trades and isn’t searching for commissions, raised Teva to Buy from Hold with a $20 price target on July 10, 2024. Its stock had closed at $15.91 the prior day. According to the Argus data, one of every twelve U.S. prescriptions is filled with Teva products. Teva is said to be steadying its ship after years of challenges and it is launching new drugs and seeing margin growth in its three primary business segments. Fresh FDA approvals have been seen for Teva’s drugs for tardive dyskinesia, Huntington’s disease, a generic Humira for plaque psoriasis and psoriatic arthritis drug, as well as a GLP-1 for type 2 diabetes. Argus’ analyst Jasper Hellweg said in the report:

Meanwhile, the company has been able to achieve price increases in some areas of its portfolio, offsetting the historically challenging issue of price erosion. Given the indications that the company has turned the page on many of its recent challenges, we believe that the stock is now attractively priced at its current levels below $16 per share and that a Buy rating is now appropriate.

OTHER UPGRADES

Teva’s analyst following has definitely morphed into an analyst upgrade brigade. Even prior to Argus, there were 5 more analysts issuing upgrades and/or price target hikes in the last 60 days alone. Here are the calls that were seen:

• Jefferies reiterated its Buy rating and raised its target to $23 from $19 on June 27. Teva was at 16.25 the prior trading day.
• Barclays reiterated its Overweight rating and raised its target to $21 from $20 on June 5, versus a $16.63 prior close.
• BofA Securities reiterated its Buy and raised its price objective to $21 from $18 on May 30, versus a $16.45 prior close.
• Piper Sandler reiterated its Overweight rating an raised its target to $20 from $19 on May 13, versus a $16.25 prior close.
• Barclays reiterated its Overweight rating and raised its target to $20 from $17 on May 9, versus a $15.74 prior close.

IS THAT “TACTICAL” ENOUGH?

That’s a total six analyst target hikes and/or upgrades worth noting. And to put this in a “tactical” perspective if your view are event-driven or shorter-term rather than longer-term, Teva is set to report earnings on July 31. These analyst upgrades and price target hikes also by and large follow prior price target hikes earlier in 2024. And the firms that had Sell, Underweight or Underperform ratings had by and large exited their negative reviews or at least hiked price targets ahead of the first earnings report this year.

SO, WHAT INVESTORS DO NOW…

Teva’s long-term investors still have a long memory of pain. Seeing a 50% gain in barely half of a year has to at least bring some confidence that the Teva turnaround is finally coming to fruition. And if the Wall Street analyst community is correct, Teva trades at not even 6.5-times a blended 2024/2025 earnings per share consensus. Now the question comes whether or not to chase a stock already up 50% in a fairly short period of time. At around $16.00, the 52-week range is $7.95 to $17.69.

Those old highs from a decade ago well above $50 will not likely matter to most new investors, but the $20 levels called by analysts and the peak close to $24 from mid-2018 might matter for those with longer-term views than just a single earnings cycle. Short-term investors might want to consider that any stock that’s already 50% in half a year might already have a lot of the near-term good news already priced into the stock.

For those who really want in but feel they missed the boat, taking the strategy of buying on pullbacks is one “chicken-bull” strategy that can be used. The same is true for those who want to buy the stock and simultaneously buying put options to cover downside risk if Teva’s earnings send the stock to more attractive (i.e. lower) levels.

And for those more aggressive investors who want to buy the stock synthetically, they can always just buy in-the-money or out-of-the-money call options. And those who are even more daring may sell puts to create lower entry points, but don’t underestimate how much downside that can bring if the stock falls sharply in a short period of time (or at least before expiration date).