UBS Downgrades Novartis To Neutral, Sees 'No Meaningful Earnings Growth Expected Before '18'

Concerns loom over the prospects of Novartis AG (ADR) NVS, with lack of visibility into Alcon and Entresto. UBS’ Alexandra Hauber downgraded the rating for the company from Buy to Neutral, while reducing the price target from CHF100 to CHF72.

Analyst Alexandra Hauber pointed out that Novartis' earnings momentum had been negative since the 2Q15 results. While Alcon prospects have deteriorated, Entresto’s disappointing US uptake has eroded expectations for the blockbuster candidate. “For both drivers (Alcon & Entresto), investors have struggled to predict where & when expectations will bottom,” Hauber wrote.

Take On Entresto

It has been difficult to identify the problem with Entresto’s value proposition, due to which it has been tough to “determine whether there is a potential inflection point,” the analyst commented.

The UBS report noted, “Our in¬depth review of the ongoing US clinical debate leaves us fairly confident Entresto can still turn into the $5bn blockbuster predicted by Novartis, though significant acceleration of script trends may not materialise before mid¬2017.”

The Entresto sales forecast for 2020 has been slashed from $8.3bn to $4.6bn, while the estimates Sales & Marketing spend in 2016 and 2017 have been raised. The Core EPS estimates for 2016-20¬20 have been reduced by 7¬17 percent. There is unlikely to be any meaningful earnings growth before 2018, Hauber said.