$Ubs on Teva>> A Price decrease to 35

The funds that holdsthe stock

What's new? Lowering numbers for 2017 and beyond

This follows the lower-than-expected guidance for 2017 that management recently provided. We decrease our sales forecasts to $23.5B from $27.1B for 2017 and to $23.3B from $26.6B for 2018 and our EPS forecasts to $4.65 from $5.90 for 2017 and to $4.85 from $5.60 for 2018. We make no changes to our 2016 sales and EPS.

(1) The changes in our sales forecasts are driven by lower-than-expected US generics sales in 2016 due to fewer than expected new launches (mgt expected $600-700M vs likely $140M) that results in a lower runrate for 2017, competition for generic Concerta with the launch of Mylan and potentially a second competitor in mid-2017, and a more significant FX impact (of the $800M expected FX impact, at least half is due to the Venezuelean currency), our assumption of lower new generic product launches ($750M vs our prior $1B) for 2017, and our lower price assumption for Copaxone with the entry of generics. (2) In addition to the lower revenues, the changes in our EPS forecasts are driven by lower GMs (mgt noted that the GM for Actavis is coming in below expectations and is lower than that for Teva), lower SG&A and R&D spend, and a faster realization of synergies from the Actavis generics deal.

While investor sentiment on the generics sector is about as bad as we have seen it in a long time, and while we think that Teva has a good generics pipeline and can probably drive at least low-single digits sales growth over the long term, this is below expectations. Also, the key milestones in the branded side come in 2H17 and will not fully offset the decline in Copaxone sales from potential generic competition. Hence, we remain on the sideline for now on this name.

Valuation: Still Neutral; Lowering PT from $42 to $35

Our PT is based on an avg generics group P/E of ~7x (vs ~7x prev) our new 2017 EPS of $4.65 (vs $5.90 prev).

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