Morningstar

Morningstar, Inc.

Equity Bottom-Up

Novartis reported strong second-quarter results, exceeding both our and consensus expectations, and we plan to increase our fair value estimate based on the outperformance. Margin expansion was particularly pronounced, which we partly attribute to the increasing mix shift toward specialty products and continuing leverage from the growth of cardiovascular drug Entresto, trends that should continue over the next several years. Novartis' recent launches of specialty drugs continues at a relatively…

Novartis has announced the acquisition of rights to dry-eye drug Xiidra from Takeda. We don't expect any changes to our fair value estimate, as the price of deal looks fairly balanced with the future sales potential of the drug. Strategically, we view the deal as helpful for Novartis to leverage its sales and marketing efforts with other eye drugs, especially the upcoming launch of age-related macular degeneration drug brolucizumab. Even though Novartis spun off its eyecare medical product group…

Novartis reported first-quarter results slightly higher than our expectations, but we don't expect any significant changes to our fair value estimate based on the minor outperformance. We continue to view the stock as slightly undervalued, with strong sales growth from recently launched drugs and expected new drug approvals offsetting generic competition over the next several years. This favorable balance in outlook helps support our wide moat rating for the firm. Further, with the recent…

With strong positions in multiple key healthcare businesses, Novartis is well positioned for steady long-term growth. Strong intellectual property supporting multi-billion-dollar products, combined with an abundance of late-pipeline products, creates a wide economic moat. While upcoming patent losses on anemia drug Exjade and cancer drug Afinitor will weigh on near-term growth, a strong portfolio of drugs along with a robust pipeline should ensure steady long-term growth.Novartis' pharmaceutical…

Novartis completed its spin-off of ophthalmology device company Alcon, which we expect will reduce our fair value estimate by close to 10%. However, we continue to view the company with a wide economic moat and with the majority of cash flows driven by patent protected branded drugs. Further, the divestment should lead to stronger profitability, and we expect core operating margins to expand to over 30% by 2022, up almost 500 basis points from 2018. We also expect the company's dividend to…

United States

Novartis AG manufactures pharmaceutical and consumer healthcare products. The Company produces pharmaceuticals for cardiovascular, respiratory and infectious diseases; oncology, neuroscience, transplantation, dermatology, gastrointestinal and urinary conditions, and arthritis; vaccines and diagnostics; vision, and animal health products.

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