Yahoo Finance Teva Pharmaceutical Industries Ltd (ADR) Needs More Than Job Cuts
Teva Pharmaceutical Industries Ltd (ADR) ( TEVA) stock jumped more than 15 percent Thursday after the company announced it will be laying off 14,000 employees and suspending its dividend as part of a restructuring and cost-cutting initiative.
Investors cheered the 25 percent workforce reduction, which has Teva's stock on track to finish an otherwise disastrous year on a high note. Long-term investors, though, should still be cautious about buying a stock with such an uncertain future.
[See: 7 of the Best Health Care Stocks to Buy for 2018.]
In a letter to employees, the company said its restructuring plan should help reduce total costs by $3 billion by the end of 2019.
"This [restructuring] will ensure better integration, improve productivity and efficiencies, and reduce our cost base," Teva CEO Kare Schultz says in Thursday's email.
Even after the big Thursday gain, Teva stock remains down more than 50 percent year-to-date. Teva's revenue tumbled after the patent for its main multiple sclerosis drug Copaxone expired this year, leaving Teva vulnerable to generic competition and pricing pressures.
In addition, the company is struggling with the $35 billion in debt it took on by acquiring the generic drug business of Allergan PLC ( AGN) in 2015. In November, Fitch Ratings downgraded Teva's credit rating to BB, which is considered "junk" status.
Teva is also suspending its dividend entirely after previously cutting its quarterly payment from 34 cents per share to 8.5 cents per share in August. The initial dividend cut came after Teva reported a 10 percent decline in Copaxone sales in the second quarter.
Wednesday's announcement may have helped Teva stock stop the bleeding in the near-term, but analysts aren't convinced that long-term investors should jump into the stock just yet. On Wednesday, CNBC analyst Jim Cramer said investors should stay away from the stock.
"I don't want you to touch it," Cramer said. "I'd rather you have Teva sandals than Teva Pharmaceuticals."
Last month, J.P. Morgan analyst Chris Schott downgraded Teva stock and said investors should steer clear until the company improves its fundamental picture.
[See: 7 Pharma Stocks and the Prognosis for Profits.]
"We see an extended road to recovery and no clear fundamental inflection in sight given ongoing challenges in the company's U.S. generics business (which we do not see growing until 2019), Copaxone generic competition, and growing levels of leverage (>5x in 2018 based on our estimates)," Schott wrote in the downgrade note, according to MarketWatch.
J.P. Morgan has an "underweight" rating for Teva stock.
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