Novartis (NVS) is another large pharma stock that seems to be fairly valued. The company has a market cap of over $133 billion, bigger than Merck (MRK) but smaller than Pfizer (PFE). It has a healthy payout with a dividend yield at 4.5%.
Like PFE and MRK, Novartis is expected to experience a downtick in FY12 revenues to the tune of 1.1%. Q1 highlighted that as sales fell 1% and EPS dropped 8% in constant currency. The sales performance was impacted by Sandoz, which was up against a strong year-ago base with enoxaparin exclusivity, and by Consumer Health, which was impacted by the suspension of production at the Lincoln, Nebraska manufacturing site. The company noted that it is making progress remediating the quality issues at the Lincoln site, as well as the three Sandoz production sites. The last two points are something that keep an eye on. Below is an in depth look at the valuation metrics and stock chart.
Valuation: Novartis' trailing 5 year valuation metrics suggest that the stock is fairly valued as there is a mixed message about the valuation metrics compared to their 5 year averages. Novartis' current P/B ratio is 2.1 and it has averaged 2.2 over the past 5 years with a high of 3 and low of 1.8. Novartis' current P/S ratio is 2.3 and it has averaged 2.7 over the past 5 years with a high of 3.5 and low of 2. Novartis' current P/E ratio is 15.6 and it has averaged 13.2 over the past 5 years with a high of 17.2 and low of 9.8.
Price Target: The consensus price target for the analysts who follow Novartis is $61. That is upside of 10% from today's stock price of $55.22 and suggests that the stock is fairly valued at these levels.
Forward Valuation: Novartis is currently trading at about $55 a share with analysts expecting EPS of $5.57 next year, an earnings increase of 3% y/y, for a forward P/E ratio of 9.9. Taking a look at the company's publicly traded comparisons will give us a better idea of the stock's relative valuation. Sanofi (SNY) is currently trading at about $38 a share with analysts expecting EPS of $3.9 next year, an earnings increase of 1% y/y, for a forward P/E ratio of 9.8. Pfizer is currently trading at about $23 a share with analysts expecting EPS of $2.35 next year, an earnings increase of 4% y/y, for a forward P/E ratio of 9.7. Merck is currently trading at about $39 a share with analysts expecting EPS of $3.7 next year, an earnings decline of 3% y/y, for a forward P/E ratio of 10.6. The mean forward P/E of Novartis' competitors is 10.1 which suggests that Novartis is fairly valued relative to its publicly traded competitors.
Earnings Estimates: Novartis has beat EPS estimates 2 times in the past 4 quarters. The company's EPS figures have come in between -6 cents and 8 cents from consensus estimates or about -4% to 5.7% from analyst estimates. The company's earnings come been relatively close to consensus estimates which suggests that analysts are good at projecting the company's results and share upside from earnings surprises will be limited.
Price Action: Novartis is down 8.5% over the past year, underperforming the S&P 500, which is up 5.5%. Looking at the technicals, the stock is currently above its 50 day moving average, which sits at $54.99 and above its 200 day moving average, which sits at $54.54.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.