Argus Initiates Novartis With A Hold, Highlights Underperformance Vs. S&P 500

Novartis AG (ADR) NVS shares have been on a downturn in 2016, and have lost 17 percent year-to-date. Argus’ John Eade initiated coverage of Novartis with a Hold rating, saying that there would have to be signs of growth, driven by the company’s strong drug pipeline, or a better valuation, to justify a positive rating.

Share Performance
Novartis’ shares have declined 15.5 percent over the past quarter, versus a 2.5 percent gain in the S&P 500. The stock has also underperformed the industry over the trailing 1-, 2- and 5-year periods.

On The Sidelines

“Our rating reflects recent weak results at the company’s Alcon (eye care) division and expectations for slower growth due to patent expirations,” analyst John Eade wrote. Novartis is exiting a transition period, during which it sold its vaccine division and purchased Glaxo’s oncology business. Now, the company is “embarking on an aggressive restructuring plan.”

The analyst added that there would need to be some signs of growth due to the company’s robust drug pipeline for the rating to move to Buy.

Long Term Buy

Novartis does generate stable earnings from its diverse businesses, and has a robust new drug pipeline, with several drugs under development that could be considered breakthrough treatments. Eade expects the company to launch a number of new drugs over the next several years, in critical areas such as coronary disease and oncology.

Moreover, Novartis has a clean balance sheet and a track record of dividend hikes. “For these reasons, our long-term rating is BUY,” the Argus report stated.