Novartis Is Set For 'Higher Returns And Growth,' Goldman Sachs Says In Upgrade

Novartis AG NVS has been on a tear since hitting a year-over-year nadir in June. As the drugmaker rides positive partnerships, drug approvals and trial successes, one analyst is projecting good health in the near-term. 

The Analyst 

Goldman Sachs analyst Keyur Parekh upgraded Novartis from Neutral to Buy and raised the price target from 86 to 110 Swiss francs ($86.40 to $110.51). He also added Novartis to the GS Conviction List.

The Thesis

Novartis should sustain top-line growth with a “reinvigorated” pharmaceutical business driven by both recently launched products and multiple late-stage candidates, Parekh said in the upgrade note. (See the analyst's track record here.) 

Goldman Sachs values Novartis' late-stage candidates $1 billion ahead of the consensus. 

Despite the possible emergence of generic competitors for Novartis’ largest product, Gilenya, the analyst estimates a 5-percent compound annual growth rate in pharma revenue.

Novartis is also expected to profit from group-wide margin improvements, Parekh said. 

“With 80 percent of incremental pharma revenues (through 2018E-22E) likely to be sourced from high-margin specialty products (such as gene therapy AVXS-101 for SMA), we believe the pharma business’s margin profile will benefit disproportionately over this period." 

The Sandoz generics segment is seen to provide additional flexibility, while Novartis’ structural execution, capital allocation, acquisition strategy and Alcon spinoff are expected to bolster total shareholder returns, the analyst said. 

“We ultimately see a more focused company with higher returns and growth, meriting a premium valuation to large-cap EU pharma." 

Price Action

Novartis was up 0.55 percent at $88.23 at the time of publication Monday. 

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