For the second straight quarter, Teva Pharmaceutical Industries (NYSE: TEVA) stock is getting the Buffett bump.
Teva shares jumped nearly 4 percent Wednesday morning after the latest filing from Warren Buffett’s Berkshire Hathaway ( BRK.A, BRK.B) revealed that Buffett’s company more than doubled its stake in Teva in the first quarter.
Berkshire’s 13F filing revealed that its stake in Teva increased from 18.8 million shares in the fourth quarter of 2017 to 40 million shares in the first quarter of 2018. At Wednesday morning’s opening price, that stake is worth roughly $846 million.
[See: Warren Buffett’s 8 Favorite Stocks.]
Teva stock surged more than 12 percent in February after Berkshire’s 13F filing revealed a brand new stake in Teva. Unfortunately, for investors hoping the position means Teva was hand-selected by Buffett himself, Buffett told CNBC in February that he knows little about Teva and was not the one at Berkshire who has been doing the buying.
Teva stock lost nearly two-thirds of its value over the past three years. In recent quarters, the company cut its guidance, suspended its dividend and announced a restructuring plan to help save cash. Teva’s most popular branded drug Copaxone, which has accounted for roughly $4 billion in annual sales, is also suffering from intense generic competition.
Still, there are several things for Berkshire to like about Teva’s business. In 2017, 57 percent of Teva’s revenue came from its own generic drug business. Sky-high prescription drug prices will likely continue to drive generic drug sales for the foreseeable future.
In addition, despite all the company’s problems and guidance cuts, Teva still expects to generate at least $3 billion in free cash flow in 2018.
But even with Berkshire’s endorsement, Bank of America analyst Jason Gerberry is not buying Teva.
“U.S. generic sector trends are likely to remain challenging in 2018-19, and TEVA has no major new generic products coming to market in 2018,” Gerberry says. “TEVA’s generic Advair filing is not scheduled for submission until late 2018.”
Gerberry says risks associated with further generic competition for Copaxone are not fully factored into consensus Wall Street estimates.
[See: 7 of the Best Health Care Stocks to Buy for 2018.]
Bank of America has an “underperform” rating and $16 price target for TEVA stock.
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Teva Stock Higher After Buffett’s Bump originally appeared on usnews.com
