Teva Pharmaceutical Industries Ltd. (NASDAQ:TEVA) was downgraded by three firms today, after posting third quarter net income growth of 127%.

JP Morgan downgraded Teva from Overweight to Neutral and Wachovia downgraded it from Outperform to Market Perform. Goldman Sachs only reduced target price on TEVA to $40 from $42 while maintaining Neutral rating. All firms cite 2007 as being a problem. Some focus on the competition front, others on growth catalyst while others yet are wary of the management change.

While it's true that net income surged 127% to $606 million, or 74 cents per share and beat analysts expectations, sales actually came below analysts' estimates. Net sales for the third quarter of 2006 increased 74% to $2,286 million, compared to $1,317 million in the third quarter of 2005. Lower than expected tax rate contributed to the strong net income, while several exclusive generic drugs pushed gross margins to 55%. The company expects gross margins to return to the 47%-50% range in 2007 as exclusivity on these drugs end.

IVAX, another generics manufacturer which Teva had acquired back in January in a deal worth $7.9 billion, seems to have been successfully integrated into the company's operations, according to the CEO, "realizing tremendous synergies."

So despite the strong quarter, analysts believe that what drove the results this quarter will not be present in 2007.

TEVA shares, which opened down 2%, are now trading flat, no doubt benefiting from the overall market rally at the moment (2:30 p.m.).