On Thursday, investment firm Goldman Sachs (NYSE:GS) adjusted its stance on Novartis (SIX:NOVN), downgrading the stock from Buy to Neutral, while slightly increasing the price target to $121 from $119.
The shift in rating follows a notable rise in the company's share price and a period of positive earnings momentum, which has brought consensus estimates in line with the firm's previous projections.
The downgrade by Goldman Sachs comes despite Novartis' stock appreciation of 11% since their initial coverage. This increase is attributed to several factors, including consistent positive earnings momentum, with the company's full-year 2024 earnings guidance being revised upward in both the first and second quarters. Additionally, Novartis has doubled its share repurchase activity, buying back approximately 400,000 shares since mid-June 2024, up from about 200,000.
Novartis has also reached a significant milestone with the Phase 3 ASC4FIRST readout for Scemblix in first-line Chronic Myeloid Leukemia (CML), which was highlighted as a key newsflow catalyst for the year. Despite these developments, Goldman Sachs sees limited immediate catalysts for further value-driving innovation in Novartis' pipeline.
The firm's assessment of large pharmaceutical companies like Novartis is based on innovation momentum, earnings momentum, and valuation. While Novartis has demonstrated strength in earnings and has a solid valuation, the current downgrade reflects a tempered outlook on the company's near-term innovation momentum.
Goldman Sachs' updated price target of $121, a slight increase from the previous $119, suggests a modestly improved outlook for Novartis' stock value, although the new Neutral rating indicates a more cautious view of the stock's potential for growth in the near future.
InvestingPro Insights
With Novartis' recent achievements and the subsequent adjustment of Goldman Sachs' stock rating, it's valuable to consider the company's financial health and market performance. Novartis' market capitalization stands robust at $241.45 billion, reflecting its significant presence in the pharmaceutical industry. The company's price-to-earnings (P/E) ratio, an indicator of the stock's valuation relative to its earnings, is currently at 15.03, with a forward P/E for the last twelve months as of Q2 2024 at 20.29. This suggests that while the stock may not be the cheapest, investors are willing to pay a premium for its earnings potential.
Investors also take note of the revenue growth, which has been solid, at 9.7% for the last twelve months as of Q2 2024. This growth is consistent with the company's performance in the same quarter, at 9.6%. The gross profit margin is notably high at 75.55%, indicating Novartis' ability to maintain a substantial profit after accounting for the cost of goods sold.
For those looking to delve deeper into Novartis' financials and stock performance, InvestingPro offers additional insights. The platform lists several more InvestingPro Tips, which can provide investors with a more nuanced understanding of the company's prospects and help inform investment decisions. Moreover, the InvestingPro Fair Value estimate for Novartis is at $125.3, suggesting potential undervaluation at the current price, which aligns with the recent price target increase by Goldman Sachs to $121.
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