Thursday, July 3, 2014

Analysis of Novartis


Novartis, a Swiss pharmaceutical company

Company: Novartis

Business: A Swiss pharmaceutical and healthcare company. It is divided into five different segments that are supported by a global research centre. The five segments are: Pharmaceuticals (development of patent-protected pharmaceutical products), Alcon (eye-care products), Sandoz (generics company for the production of non-patent protected pharmaceuticals), Consumer Health (over-the-counter products as well as animal health products), Vaccines & Diagnostics (developing vaccines and products for safe blood transfusion).

Active: World wide presence and are currently selling their products in 150 countries.

P/E: 24.3


This company was analysed due to a request from Mark on the Analysis Requests page.

Contrarian values of P/E, P/B, ROE as well as dividend for Novartis
The P/E of Novartis is out of my league with 24.3 and the P/B is in the same direction with 3.0 which gives a clear no go from Graham. The earnings to sales are excellent with 16% and the ROE is ok but not more with 12.3%. The book to debt ratio is great with 1.4. In the last five years they have had a very healthy yearly growth rate of 5.5% which then also gives us a motivated P/E of 16 to 20 which means that Novartis is currently slightly overvalued by the market.
They spend a massive amount of research which correspond to 107% of their earnings so they try to stay ahead and I think these kind of numbers are needed within the pharmaceutical business. They pay an ok dividend of 2.7% which on the other hand correspond to almost 65% of their earnings so they better keep improving the earnings to be able to pay out even this mediocre dividend.

Conclusion: Graham as well as I turn down Novartis. It is an excellent company and they have an amazing amount of great products being sold all over the world but they are simply to expensive today. The P/E is too high, the P/B is too high and the ROE is too low for my liking.

If this analysis is outdated then you can request a new one.

2 comments:

Mark said...

Thanks Fredrik, look forward to your analysis of Roche Holding, thanks Mark.

Fredrik von Oberhausen said...

You are welcome Mark!

Roche will be published tomorrow.

/Fredrik