Teva Downgraded: Upside Looks Limited

[Stocks-to-Watch]

Teva Pharmaceuticals (TEVA) has risen 11% in the past three months, after sliding during the first nine months of 2011. The stocks’ uptick, and a more balanced risk/reward profile convinced Morgan Stanley analyst David Risinger to cut his rating on the stock to Equal Weight from Overweight.

“An improved outlook, $3B share buyback, and new CEO Jeremy Levin have driven Teva’s multiple from 7 times to about 8 times, but we now see the risk-reward as balanced in the context of our relative rating system.”

The stock price hinges on litigation regarding patent protection for the company’s top-selling MS treatment Copaxone. If the company wins the case, which Risinger expects, the stock could see an additional $1 to $2 of upside. “But we see $5–$6 stock downside if Teva surprisingly loses Copaxone patent litigation…Investors may fear that patent loss could drive FDA to approve [competitor]* Momenta’s generic more quickly (FDA is supposed to operate independently of the courts).”

Teva shares were recently down 1.1%.



Original Article Source by Barrons.com