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Novartis (NVS) Up 7.7% Since Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for Novartis AG (NVS - Free Report) . Shares have added about 7.7% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Novartis Beats Q4 Earnings, Might Spin-Off Alcon
Novartis reported fourth-quarter 2016 core earnings of $1.12 per share, above the Zacks Consensus Estimate of $1.09 but below than the year-ago figure of $1.14. Moreover, revenues declined 2% to $12.3 billion and were marginally below the Zacks Consensus Estimate of $12.4 billion as volume growth was offset by the negative impact of generic competition. All growth rates mentioned below are on a year-over-year basis and at constant exchange rates.
The Quarter in Detail
Novartis operates under three segments: Innovative Medicines (Pharmaceuticals), Alcon (Ophthalmology unit) and Sandoz (Generics).
The Innovative Medicines division recorded sales of $8.3 billion, down 1%. Generic competition and pricing pressure dented sales at the segment primarily attributed to entry of generics for Gleevec in the U.S. Growth products – Gilenya, Tasigna, Cosentyx, Tafinlar + Mekinist, Promacta/Revolade, Jakavi and Entresto – surged 20% to $4.0 billion, and comprised 48% of net division sales.
Sales at the Sandoz division were $2.6 billion; up 3% as volume growth was offset by price erosion. Biopharmaceuticals sales surged 28% to $277 million.
Sales at the Alcon division were $1.4 billion, flat y/y. Surgical sales were down due to lower sales of cataract and refractive equipment along with competitive pressures in intraocular lenses (IOLs). The supply levels and customer service has improved in the surgical department. Vision care sales were up 5% fueled by strong performance of the daily contact lens portfolio, including continued double-digit growth of Dailies Total1 globally.
2016 Results
Revenues for 2016 came in at $48.5 billion, marginally below the Zacks Consensus Estimate of $48.6 billion. Earnings per share came in at $4.75, down from $ 5.01 in 2015 but surpassed the Zacks Consensus Estimate of $4.71.
2017 Outlook
Novartis expects net sales to be broadly in line with the 2016 levels after including the impact of continued genericization of Gleevec/Glivec in the U.S. and Europe. The impact of generic competition on sales is expected to be approximately $2.5 billion in 2017. Moreover, unfavorable currency movement is anticipated to hurt sales by 2% in 2016.
Pipeline Update
Novartis’ pipeline progress has been encouraging. The company received EU approval for a label expansion of ophthalmology drug Lucentis. The drug is now approved to treat patients with visual impairment due to rare conditions causing choroidal neovascularization (CNV). The European Commission (EC) also approved Arzerra in combination with fludarabine and cyclophosphamide for the treatment of adult patients with relapsed chronic lymphocytic leukemia.
On the other hand, Novartis got positive opinion from CHMP for Votubia as an adjunctive treatment for patients aged two years and older whose refractory partial-onset seizures, with or without secondary generalization, are associated with tuberous sclerosis complex (TSC).
The CHMP also recommended the approval of Ilaris to treat three rare and distinct Periodic Fever Syndromes. Quite a few drugs/candidates received Priority Review status from the FDA. The FDA granted priority review to LEE011 (ribociclib) in combination with letrozole as first-line treatment for post-menopausal women with HR+/HER2– advanced or metastatic breast cancer. The application for the same was also accepted for review in the EU. The FDA also granted Priority Review to Tafinlar + Mekinist combination therapy for the treatment of BRAF mutant non-small cell lung cancer (NSCLC) and PKC412 (midostaurin) for the treatment of newly diagnosed FLT3 mutation-positive acute myeloid leukemia and advanced systemic mastocytosis.
Novartis is also looking to expand Zykadia’s label in the U.S. and EU as a first-line treatment for patients with ALK+ NSCLC. The company has submitted applications for the same in the U.S. and EU.
Meanwhile, BACE inhibitor CNP520 was granted Fast Track designation in the U.S. We note that Novartis is developing CNP520 is being co-developed with Amgen, Inc. (AMGN).
On the other hand, Sandoz continues to strengthen its biosimilars portfolio. The ASSIST-FL trial met its primary endpoint wherein biosimilar version of MabThera demonstrated equivalent efficacy in addition to safety, pharmacokinetics and pharmacodynamics to the reference product while the data from the EGALITY trial showed that there are no clinically meaningful differences between biosimilar version of Enbrel and reference drug.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There has been one revision lower for the current quarter.
At this time, Novartis' stock has an average Growth Score of 'C', though it is lagging a bit on the momentum front with a 'D'. However, the stock was allocated a grade of 'D' on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'D'. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is solely suitable for growth investors.
Outlook
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #5 (Strong Sell). We are expecting below average return from the stock in the next few months.
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Novartis (NVS) Up 7.7% Since Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Novartis AG (NVS - Free Report) . Shares have added about 7.7% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Novartis Beats Q4 Earnings, Might Spin-Off Alcon
Novartis reported fourth-quarter 2016 core earnings of $1.12 per share, above the Zacks Consensus Estimate of $1.09 but below than the year-ago figure of $1.14. Moreover, revenues declined 2% to $12.3 billion and were marginally below the Zacks Consensus Estimate of $12.4 billion as volume growth was offset by the negative impact of generic competition.
All growth rates mentioned below are on a year-over-year basis and at constant exchange rates.
The Quarter in Detail
Novartis operates under three segments: Innovative Medicines (Pharmaceuticals), Alcon (Ophthalmology unit) and Sandoz (Generics).
The Innovative Medicines division recorded sales of $8.3 billion, down 1%. Generic competition and pricing pressure dented sales at the segment primarily attributed to entry of generics for Gleevec in the U.S. Growth products – Gilenya, Tasigna, Cosentyx, Tafinlar + Mekinist, Promacta/Revolade, Jakavi and Entresto – surged 20% to $4.0 billion, and comprised 48% of net division sales.
Sales at the Sandoz division were $2.6 billion; up 3% as volume growth was offset by price erosion. Biopharmaceuticals sales surged 28% to $277 million.
Sales at the Alcon division were $1.4 billion, flat y/y. Surgical sales were down due to lower sales of cataract and refractive equipment along with competitive pressures in intraocular lenses (IOLs). The supply levels and customer service has improved in the surgical department. Vision care sales were up 5% fueled by strong performance of the daily contact lens portfolio, including continued double-digit growth of Dailies Total1 globally.
2016 Results
Revenues for 2016 came in at $48.5 billion, marginally below the Zacks Consensus Estimate of $48.6 billion. Earnings per share came in at $4.75, down from $ 5.01 in 2015 but surpassed the Zacks Consensus Estimate of $4.71.
2017 Outlook
Novartis expects net sales to be broadly in line with the 2016 levels after including the impact of continued genericization of Gleevec/Glivec in the U.S. and Europe. The impact of generic competition on sales is expected to be approximately $2.5 billion in 2017. Moreover, unfavorable currency movement is anticipated to hurt sales by 2% in 2016.
Pipeline Update
Novartis’ pipeline progress has been encouraging. The company received EU approval for a label expansion of ophthalmology drug Lucentis. The drug is now approved to treat patients with visual impairment due to rare conditions causing choroidal neovascularization (CNV). The European Commission (EC) also approved Arzerra in combination with fludarabine and cyclophosphamide for the treatment of adult patients with relapsed chronic lymphocytic leukemia.
On the other hand, Novartis got positive opinion from CHMP for Votubia as an adjunctive treatment for patients aged two years and older whose refractory partial-onset seizures, with or without secondary generalization, are associated with tuberous sclerosis complex (TSC).
The CHMP also recommended the approval of Ilaris to treat three rare and distinct Periodic Fever Syndromes. Quite a few drugs/candidates received Priority Review status from the FDA. The FDA granted priority review to LEE011 (ribociclib) in combination with letrozole as first-line treatment for post-menopausal women with HR+/HER2– advanced or metastatic breast cancer. The application for the same was also accepted for review in the EU. The FDA also granted Priority Review to Tafinlar + Mekinist combination therapy for the treatment of BRAF mutant non-small cell lung cancer (NSCLC) and PKC412 (midostaurin) for the treatment of newly diagnosed FLT3 mutation-positive acute myeloid leukemia and advanced systemic mastocytosis.
Novartis is also looking to expand Zykadia’s label in the U.S. and EU as a first-line treatment for patients with ALK+ NSCLC. The company has submitted applications for the same in the U.S. and EU.
Meanwhile, BACE inhibitor CNP520 was granted Fast Track designation in the U.S. We note that Novartis is developing CNP520 is being co-developed with Amgen, Inc. (AMGN).
On the other hand, Sandoz continues to strengthen its biosimilars portfolio. The ASSIST-FL trial met its primary endpoint wherein biosimilar version of MabThera demonstrated equivalent efficacy in addition to safety, pharmacokinetics and pharmacodynamics to the reference product while the data from the EGALITY trial showed that there are no clinically meaningful differences between biosimilar version of Enbrel and reference drug.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There has been one revision lower for the current quarter.
Novartis AG Price and Consensus
Novartis AG Price and Consensus | Novartis AG Quote
VGM Scores
At this time, Novartis' stock has an average Growth Score of 'C', though it is lagging a bit on the momentum front with a 'D'. However, the stock was allocated a grade of 'D' on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'D'. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is solely suitable for growth investors.
Outlook
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #5 (Strong Sell). We are expecting below average return from the stock in the next few months.