Shares of the multinational pharma company Teva Pharmaceutical (NYSE: TEVA) were up almost 10% on Wednesday after the company reported impressive Q4 earnings before the session opened. Their EPS and revenue numbers both beat analyst expectations and while the latter was only up 1% year on year, earnings were up 104% for the same time period.
That’s a serious jump in income for a $15 billion company in a traditionally slow-moving industry to see but it helps back up the 120% rally that we’ve seen in Teva’s shares over the past five months.
Kåre Schultz, the company’s CEO, said with the results; “in 2019, we made great strides towards positioning Teva for renewed growth by completing our two-year restructuring plan, reducing our cost base by more than $3 billion, and reducing our net debt by more than $9 billion, all while maintaining our global leadership in generics, serving around 200 million patients every day. Looking ahead, we will further transform our manufacturing network, improve our profitability, and generate cash, which will further reduce our debt. We will enhance our biopharmaceutical offerings, and expand our key assets with additional indications and geographies.”
Fall From Grace
That’s fighting talk to be sure and investors will be watching closely to see if he makes good on his words. Considering that in the grander scheme of things, the recent 120% move in the stock price only brings shares back to where they were trading in 2000, you wouldn’t blame them.
Starting at the turn of the current millennium, shares went on a 1,000% rip through the first half of 2015. But it’s been a tough five years since then for Teva. Midway through 2015, shares were trading at all-time highs and the future was bright. They’d rallied 90% over the 24 months alone and the momentum suggested they could rally another 90%.
However, in the four years since through last August, they went the other direction and lost 90% of their value. Consistently poor earnings, a diminishing pipeline of profitable products and constant headwinds from the opioid scandal did some serious damage. In the middle of all that, the company wracked up significant debt that raised more than a few eyebrows. Last summer Moody’s downgraded the company due to their uncomfortably high leverage numbers, continued exposure to opioid litigation and a ‘relatively thin cushion’ to absorb any more negative developments.
Teva isn’t the only healthcare or pharma company to be catching heat over the opioid scandal but they’re certainly lagging their peers in bouncing back from it.
In recent months though, things seem to be turning around for them. Management raised forward guidance in their Q3 report last November and investors will be hoping the next report due around May keeps the momentum going. It’s a fragile rally that’s currently underway but a rally nonetheless.
Investors should be targeting 2018’s highwater mark of $24 as the next big target for now. That will help establish last August’s low as a bottom and will give shares a solid base to continue to consolidate along in advance of a push back towards former heights. There’s a downtrend in play since 2017 that they’ll have to contend with shortly if the rally continues, but a breakthrough this would only confirm the rebound and recovery that’s in play.
It’s worth noting that on the weekly chart shares are starting to look a little warm with RSI just over 70 while on the daily it’s well over 80. However, the MACD is still in a bullish crossover which reinforces the bull case in the near term, especially on the back of yesterday’s post-earnings move.