What Will Evaporate First: Teva's Earnings or Analyst Estimates?

In the interests of analysts’ credibility, I have to mention here an interesting article about Teva Pharmaceutical Industries Ltd. (Nasdaq: TEVA) that appeared on the site CNNMoney.com, under the heading, “The king of generics having a hot 2006 but faces slump crisis next year.”

So I read the article by Aaron Smith, and in fact, I read it twice to make sure I understood his train of thought. “This is a good year for Teva Pharmaceuticals but 2006 will be a hard act to follow, and it sets the stage for an earnings slump in 2007,” he says. Why? Because Raymond James Financial analyst Michael Krensavage claims that Teva’s “ large windfall from the launch of two generic cholesterol drugs in the second quarter will quickly evaporate." Leerink Swan analyst Will Sawyer, tells the CNN reporter “ That's the concern on Wall Street: that after a solid 2006, growth in 2007 is going to be minimal." Smith explains that Sawyer says that “after the slump, sales could pick up again. In its earnings release Teva said it has 148 more applications for generic drugs filed with the US Food and Drug Administration [FDA].” But that’s already another story.

Last week Jeffries & Co. also joined the doubters. It is interesting to observe the immense confidence of analysts in the results for 2006 and their reservations about 2007. During the first half of 2006, those same analysts were cautious about 2006 and confident about 2007. When Teva recently hit its annual low under the influence of its first quarter financial report, Leader Capital Markets analyst Uri Hershkovitz was wondering why Teva was tumbling while everyone else was saying that 2006 would be its best year ever. I quoted him in this column, and sometime afterward, the following message appeared in my email, “You may have understood things in the past Greenberg, but you’re past it now. Teva cannot grow at the rate it did before. What does Hershkovitz understand? He’s just a kid.”

With the reservations now shifting to 2007, I once again urge everyone to take what the analysts and commentators say with a pinch of salt. Incidentally, this week Teva began distribution of its generic version of Pfizer’s antidepressant drug, Zoloft. The ethical version had sales totaling $3.1 billion in 2005 and Teva has an advantage in that it has a 180 day exclusivity period in which to sell its generic version alongside Pfizer’s ethical drug. The only thing that I expect to evaporate are the analysts’ theses. We’ll wait and see.

Published originally by Globes [online], Israel business news - www.globes.co.il
© Copyright of Globes Publisher Itonut (1983) Ltd. 2006. Republished on Seeking Alpha with full permission.