Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) stock is off more than 50% so far this year. For most stocks, that isn’t the time to jump in, but TEVA is not like most stocks.
This is one of the leading generic drug producers in the world. For a long time, that was enough, too. With its growth came desire for more growth. And persistent low interest rates were a clarion call to more growth.
It did what many companies have done to get a lead on the competition — it borrowed massively to expand its business. It went on an acquisition spree, buying up all the competition it could, figuring it would be able to service the loans with the new revenue.
Unfortunately, U.S. courts changed the dynamic by allowing more generics competition sooner than TEVA counted on. Increased competition, meant more price competition and tighter margins than the company expected. That has led to some very discouraging earnings announcements.
But if that were all, TEVA stock still had a chance. However, during the price drop, TEVA had to cut its dividend, which is a bright, flashing red light on Wall Street to sell. Its long-time CEO also stepped down for undisclosed reasons.
Certainly, none of this inspires any thoughts of buying this company.
However, things are starting to turn around.
Just this week, TEVA announced that it has found a new CEO, Kare Schultz, a veteran of the pharmaceutical industry. He was recently CEO of Denmark-based pharmaceutical firm H Lundbeck A/S, where he got the reputation as a turnaround artist. Before joining Lundbeck, Schultz worked for nearly 30 years at pharma giant Novo Nordisk A/S (ADR) (NYSE:NVO), where he rose to chief operating officer.
There was some consternation on who would come in to the position given the state of the company but Schultz seems to be the right leader at the right time.
Also, the generics market is stabilizing at this point. No doubt there is more competition for Teva in the generics space, but much of the expansion is done and now it’s a clear playing field.
This new CEO shift is very well timed. What’s more, most of the bad news – and then some – is already priced into the stock. And unlike some other pharma firms that have imploded recently, there are no internal issues that will hamper the company with distributors or regulators.
TEVA stock is for the risk tolerant right now, but it’s showing signs of life after a terrible year. And right now, this is a growth play; forget about the dividend. It may be sacrificed yet again before this is all over. The play here is righting this ship and getting it moving forward once again.
