Summary

We reckon that Novartis AG(NVS)’ stock price was overestimated ,and $73 per share is a good buy point.

Introduction

Novartis AG(NVS) is a multinational group of company specializing in the research, development, manufacturing and marketing of broad range of innovative pharmaceuticals and cost-saving generic medicines.

Novartis AG(NVS), Swiss holding company, owns, directly or indirectly, all of significant operating companies. 

The Group comprises two global divisions: Innovative Medicines(innovative patent-protected prescription medicines)and Sandoz(generic pharmaceuticals and biosimilars).

The Innovative Medicines Division is the larger of two divisions in terms of consolidated net sales. It reported consolidated net sales of $41.3 billion in 2022, which represented 81.7% of the Group’s net sales.

The product portfolio of the Innovative Medicines Division includes a significant number of key marketed products, many of which are among the leaders in their respective therapeutic areas.   

Key marketed products include Cardiovascular, Immunology, Neuroscience, Solid Tumor, Hematology, Other Promoted Brands, Established Brands and Compounds in development.

In 2022, the Sandoz Division achieved consolidated net sales of USD 9.2 billion, representing 18.3% of the Group’s total net sales.

Asset structure analysis

Novartis AG(NVS’ s total assets was $117.4 billion in fiscal 2022,which is down $14.3 billion or 10.8%,while compared with $131.7 billion in fiscal 2021.

The company reported goodwill of $29.3 billion , intangible asset other than goodwill of about $31.6 billion, property plant and equipment of $10.7 billion on the balance sheet in 2022.

You could see that the combined of goodwill and intangible assets amounted approximately $61 billion, which accounted for 51.9% of the total assets.

Goodwill and intangible assets would bring about decreasing earnings on income statement, if the assets acquired dose not reach the level of earning.

As of September 30, 2023, Goodwill was $23.4 billion ,down from $29.3 billion as of December 31,2022.

As of September 30, 2023, intangible assets other than was were $26.4 billion ,down from $31.6 billion as of December 31,2022. 

Liquidity and solvency analysis

The total debt was $58.0 billion in 2022, and the debt ratio was 49% in 2022.

The current assets totaled $36.9 billion in 2022 and the current liabilities totaled $28.6 billion in 2022,and therefore the current ratio was 1.29:1, which is lower than 2:1.

But we don’t worry, large steam of cash flow from could service debt.

Novartis AG(NVS) in 2022 reported that net cash flows from operating activities was $14.2 billion.

The cash flow liquidity ratio was 1.11time.

Profitability analysis

The net sales in 2022 was about $50.5 billion, which is slight lower than $51.6 billion in 2021.

The operating income was $9.1 billion in 2022, and operating margin was 16.5% in 2022.

The return on equity was 15.3% in 2022.

Cash flow analysis

The firm reported $14.2 billion in net cash flows from operating activities , $1.46 billion in cash flows from investing activities and -$20.5 billion in net cash flows from financing activities in 2022.

The dividends paid to shareholders of Novartis AG was $7.5 billion in 2022.

The acquisitions of treasury shares was $10.6 billion in 2022.

The repayments of the current portion of non-current financial debts was $2.5 billion.

The both of net cash flows from operating activities and net cash flows from investing activities represent cash inflows of $15.6 billion ,and  the net cash flows from financing activities mean cash outflows of $20.5 billion.

The cash and cash equivalents decreased from $12.4 billion at December 31,2021 to $7.5 billion at December 31,2022.

The net cash flows from operating activities was completely consumed by dividends, repurchasing stock and repayment debts.

The company take shareholders to return seriously through paying dividends and repurchasing shares.

Novartis AG(NVS)’Q3 ,2023

Novartis AG(NVS) reported net sales of $34 billion in the nine months to September 30, 2023, up from $31.6 billion in the nine months to September 30,2022.

The net income was $6.3 billion in the nine months to September 30, 2023, up from $5.4 billion in the nine months to September 30,2022.

The net cash flows from operating activities was $11.6 billion in the nine months to September 30, 2023, up from $9.2 billion in the nine months to September 30, 2022.