The Shock Exchange initially assumed Buffett was barking up the wrong tree:
Teva’s shares are up over 90% off there 52-week low that was reached shortly after Q3 2017 earnings were. Most of the rebound was due to exuberance over management’s restructuring plan that involved the lay off of 25% of its workforce and potentially $3 billion in cost savings. To be fair, dip buyers have been rewarded over the past decade. Whenever financial markets have faltered they have always miraculously bounced back. Maybe Berkshire expects global central bankers to save Teva and financial markets.
Despite the recent pullback the Dow Jones (DIA) is still up over 35% since President Trump took office. Berkshire’s play is mind-boggling until one adjusts for the melt up in financial markets over the past decade. Nonetheless, I believe Berkshire is barking up the wrong tree …
After all, Teva had been on a decade-long acquisition spree that had left the company highly-indebted. It was still unclear about what match Teva’s management used to justify such acquisitions. It was reeling from Mylan’s generic Copaxone, which was threatening Teva’s most-profitable product. Lastly, the generics segment was facing heated competition and pricing pressure in North America.
Teva’s revenue, EBITDA margins and cash flows were about to take more hits, despite CEO Kare Schultz’s new cost-cutting plan. The news of Buffett’s investment helped spike TEVA even higher. The stock peaked at just over $24 in July 2018, along with broader markets. Recent volatility has driven TEVA down to under $19 and the stock is down by double-digits Y/Y.
