Cowen Downgrades Novartis, Strengths 'Now Balance Its Risks'

Steve Scala of Cowen downgraded shares of Novartis AG (ADR) NVS from Outperform to Market Perform with a price target lowered to $77 from $87 as the company's strengths "now balance its risks."

According to Scala's estimates, Novartis' earnings per share growth from 2016 through 2022 is expected to be 6 percent, which falls short of the industry average of 9 percent. Moreover, the analyst doesn't see any room for EPS revisions as the company's pharmaceutical and Alcon segments will require incremental spending moving forward.

While Alcon's recovery is ongoing the analyst argued there is no timing when Novartis can demonstrate any tangible results in the top and bottom line. Similarly, Novartis' Entresto continues to build at a slow pace and faces obstacles in the near term such as adoption.

No Major Events In 2017

In fact, Scala sees Novartis' 2017 EPS to fall by 1 percent in 2017 to $4.70 and even the analyst's convictions in his 2022 earnings per share estimate of $6.85 is "not high."

Scala argued that among Novartis' 20 upcoming many events this year, few will be "major" other than RTH258 Phase 3 data in we AMD in the bottom half of 2017 and a "Meet Management" event scheduled for June.

Bottom line, the company's lack of new pipeline opportunists and below industry average growth prompted the analyst to become less positive on the stock's outlook.

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