Large-cap companies are generally considered safer than small- or mid-cap companies because of their broader market reach, pricing power, and liquidity. Moreover, these businesses tend to be the least sensitive to economic headwinds.
Therefore, large-cap stocks generally make stable investments, typically characterized by lower volatility, greater analyst coverage, and a consistent dividend stream. Amid ongoing macroeconomic uncertainties, investors could consider buying fundamentally sound large-cap stock, Novartis AG ADR (NVS).
With a $195.87 billion market cap, Switzerland, Basel-based pharmaceutical giant NVS continued to embed operational excellence by delivering solid third-quarter financials. The company’s six in-market growth drivers with multi-billion sales potential (Cosentyx, Entresto, Zolgensma, Kisqali, Kesimpta, Leqvio) increased 23% and nearly represented 33% of total Innovative Medicines (IM) sales.
“Looking ahead, we are confident in delivering growth and margin expansion through our new focused “pure-play” Innovative Medicines strategy, underpinned by our five core TAs, technology platforms, priority geographies and a deep, value-oriented pipeline,” said Vas Narasimhan, MD, CEO of Novartis.
Furthermore, NVS remains disciplined and shareholder-focused in its approach to capital allocation, with a strong capital structure and substantial cash generation. The company pays a $3.33 per share dividend annually, which translates to a 3.68% yield on the current price. Its four-year average dividend yield is 3.57%. Its dividend payouts have grown at a CAGR of 5.5% over the past three years and 4.1% over the past five years.
Shares of NVS have gained 7.9% over the past six months to close the last trading session at $90.56.
Here is what could influence NVS’ performance in the upcoming months:
Positive Recent Developments
On December 13, 2022, NVS presented pivotal Phase from the pivotal Phase III APPLY-PNH data. The trial results showed that most patients with paroxysmal nocturnal hemoglobinuria (PNH) who received the investigational oral monotherapy iptacopan achieved clinically meaningful increases in hemoglobin levels compared to anti-C5 therapy.
Also, on December 6, NVS and MorphoSys AG (MOR), a wholly owned subsidiary of Constellation Pharmaceuticals, Inc., entered into a global licensing agreement. The agreement aims to enhance research and develop and commercialize pre-clinical inhibitors of a novel cancer target. This is a milestone partnership in oncology.
Robust Financials
For the fiscal third quarter ended September 30, 2022, NVS’ net sales were $30.90 billion, with volume contributing 12 percentage points to growth. Sales growth was primarily driven by a strong performance from Entresto, Kesimpta, Cosentyx, and Kisqali.
In addition, NVS’ cash inflows from investing activities from continuing operations stood at $5.20 billion, compared to $1.2 billion net cash outflows in the prior year’s quarter. Total current liabilities of $28.20 billion decreased by $2 billion compared to December 31, 2021.
Favorable Analyst Estimates
Analysts expect NVS’ revenue for the first quarter (ending March 2023) to come in at $12.66 billion, indicating an increase of 1% year-over-year. The consensus EPS estimate of $1.58 for the ongoing quarter indicates an 8.2% year-over-year increase.
Furthermore, the company’s revenue and EPS for the current fiscal year (ending December 2023) are expected to grow 0.9% and 6.8% from the previous year to $51.70 billion and $6.49, respectively.
High Profitability
NVS’ trailing-12-month gross profit margin of 71.86% is 30.1% higher than the 55.24% industry average. Its trailing-12-month EBITDA margin of 37.12% is 896.3% higher than the 3.73% industry average. Likewise, the stock’s trailing-12-month net income margin of 41.71% compares to the industry average of negative 5.94%.
Furthermore, NVS’ trailing-12-month ROCE, ROTC, and ROTA of 37.07%, 9.82%, and 18.40% compare to the industry averages of negative 39.80%, 22.05%, and 31.07%, respectively.
Discounted Valuation
In terms of forward non-GAAP P/E, NVS is currently trading at 14.90x, 25.3% lower than the industry average of 19.95x. The stock’s forward EV/EBITDA multiple of 11.96 is 10.7% lower than the industry average of 13.39. Also, its forward EV/EBIT of 12.45x compares with an industry average of 17.77x.
Furthermore, in terms of forward Price/Sales, NVS is currently trading at 3.78x, 19.5% lower than the industry average of 4.70x. The stock’s forward Price/Cash Flow of 15.59x is 10.3% lower than the industry average of 17.38x.
POWR Ratings Show Promise
NVS has an overall rating of A, translating to a Strong Buy in our POWR Ratings system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. NVS has a grade A for Stability. The stock’s beta of 0.35 justifies its Stability grade. In addition, it has a B grade for Quality, in sync with its higher-than-industry profitability metrics.
NVS is ranked #14 out of 166 stocks in the Medical-Pharmaceuticals industry.
Beyond what I have stated above, we have also given NVS grades for Value, Growth, Momentum, and Stability. Get access to all NVS ratings here.
Bottom Line
NVS maintained a solid growth momentum in its last reported quarter. Moreover, the company is well-positioned to deliver substantial growth and margin expansion through its focused “pure-play” Innovative Medicines (MI) strategy, underpinned by its five core therapeutic areas (cardiovascular, immunology, neuroscience, solid tumors and hematology), technology platforms, and a value-oriented pipeline.
NVS’ financial discipline allows it to pay attractive dividends to its shareholders. Amid uncertain macroeconomic conditions, adding this large-cap pharmaceutical stock to your portfolio could be wise for stable returns.
How Does Novartis AG ADR (NVS) Stack up Against Its Peers?
NVS has an overall POWR Rating of A. One could also check out these other stocks within the Medical-Pharmaceuticals industry with an A (Strong Buy) rating: Johnson & Johnson (JNJ), Takeda Pharmaceutical Co. LTD. ADR (TAK), and Neurocrine Biosciences, Inc. (NBIX).
NVS shares were trading at $91.02 per share on Friday morning, up $0.46 (+0.51%). Year-to-date, NVS has gained 0.33%, versus a 3.51% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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