The Novartis Conundrum Explained (BUY, TP CHF 83 [115], 12 pgs)
Novartis delivered a guidance upgrade yesterday, the shares are on 13x 2021 EPS, EBIT is set to grow teens in CER this year, the dividend yield is >4%, COVID has been weathered, the pipeline is strong & EPS forecasts have been stable for 2020 & 2021. YET, the shares closed down 3% & have de-rated >10% since July. After many conversations with investors, we conclude there are 3 reasons for this poor performance. As a result of these factors we can no longer justify the premium rating our old PT implied & cut our PT to CHF83, implying Novartis trades on 13x 2022 EPS for 7% CAGR EPS growth. We discuss the catalysts that could help lift the dark clouds surrounding the shares & suggest a large buyback programme at these levels may create more value than M&A.For access to the full note please contact Naresh Chouhan
Novartis is a multinational healthcare group based in Switzerland. Co. provides healthcare solutions that address the evolving needs of patients and societies worldwide. Co.'s broad portfolio includes innovative medicines, eye care products and cost-saving generic pharmaceuticals. Co.'s operations are organized along three operating divisions: Innovative Medicines Division; Sandoz Division; and Alcon Division. Co.'s operations are supported by the Novartis Institutes for BioMedical Research and Novartis Business Services.
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