The common saying is that no news is good news, but for Teva Pharmaceutical Industries Ltd. (TEVA, Financial), any news at this point will be good news. The world’s leading generics giant cannot possibly disillusion shareholders more than it already has this past year.
Teva could make a few key announcements that would give a major boost to shares, moves the company will have to make soon if it intends to survive. First, Teva will eventually name a new CEO. When it does, shares will jump. It needs to do this before anything else. Whether that jump will be sustained depends on if and when it can announce key divestitures.
The company is actively looking for a buyer for about $2 billion worth of assets it wants to divest in order to reduce debt. These include its women's health unit and its European oncology and pain unit. Overall, Teva is looking to cut its debt by $5 billion by the end of 2017. The executive staff insist divestiture plans will go through by the end of the year, though no official announcements have been made beyond that.
Teva may be looking for a one-two punch insofar as naming a new CEO and announcing divestiture deals. If those two landmarks are announced together this year, the stock could pop significantly. It would not make a dent in the long-term chart, but could be rewarding for shareholders who pick up some stock now as there is clearly some Teva blood in the streets.
There is something interesting about the amount Teva is targeting for debt reduction. Although its total debt load is quite astronomical at this point, the amount of debt Teva has that is subject to floating interest rates is actually quite low compared to its total debt. The vast majority of its debt, over $28 billion, is fixed-rate.
In fact, by the end of 2018, Teva has only $5.25 billion due in floating-rate debt. It is possible the Israeli company is making an attempt to pay off its floating-rate debt obligations first and foremost, at which point almost all of its debt will be fixed-rate, protected against rising interest rates.
It is no secret investors are wary of Teva’s debt load. The big fear seems to be that as its generics business suffers and Copaxone sales plummet from incoming competition (a taste of its own generic medicine, so to speak), Teva may start to drown in debt service payments. That will not happen, however, if it is only subject to fixed-rate debt.
If this is indeed Teva’s plan and it can pay off its most pressing liabilities while subsequently announcing new leadership and key divestitures, investors' biggest unspoken fear may quickly be reversed to hope for the company’s future.
Teva’s shares are currently priced for disaster. If the company can execute this year on showing shareholders that it is, indeed, still the world’s leader in generic medicine, perhaps the stock's enormous decline can be partially reversed. At this point, even a 50% reversal to the mid-$20s would be huge for bottom-pickers with Teva in their sights.
Disclosure: Long TEVA.
