Novartis Ag (NYSE: NVS)

Sector: Healthcare Industry: Drug Manufacturers - General CIK: 0001114448
Market Cap 304.60 Bn
P/B 6.60
P/E 21.78
P/S 5.37
ROIC (Qtr) 16.70
Div Yield % 2.46
Rev 1y % (Qtr) 2.23
Total Debt (Qtr) 35.46 Bn
Debt/Equity (Qtr) 0.77

About

Novartis AG, known simply as Novartis, is a prominent player in the pharmaceutical industry, with its headquarters based in Basel, Switzerland. Established in 1996, the company has grown to employ over 76,000 employees globally and has built a reputation for its diverse portfolio of innovative medicines that tackle numerous healthcare challenges. Novartis operates in various business segments, each specializing in a particular area of medicine. The Cardiovascular, Renal and Metabolic segment offers products such as Entresto (sacubitril/valsartan)...

Read more

Price action

Investment thesis

Bull case

  • Strong operating cash flow of 19.14B provides robust 0.54x coverage of total debt 35.46B, indicating excellent debt servicing capability and financial flexibility.
  • Operating cash flow of 19.14B provides exceptional 1126.12x coverage of minority interest expenses 17M, showing strong core operations.
  • Operating cash flow of 19.14B provides exceptional 16.73x coverage of interest expenses 1.14B, showing strong debt service capability.
  • Robust free cash flow of 17.61B exceeds capital expenditure of 1.53B by 11.47x, indicating strong organic growth funding capability.
  • Robust tangible asset base of 55.97B provides 17.59x coverage of working capital 3.18B, indicating strong operational backing.

Bear case

  • Operating cash flow of 19.14B barely covers its investment activities of (4.88B), with a coverage ratio of -3.93, indicating heavy reliance on external financing for growth which may not be sustainable in a tighter credit environment.
  • Operating cash flow of 19.14B provides thin coverage of dividend payments of (7.82B) with a -2.45 ratio, suggesting potential dividend sustainability issues if operational performance deteriorates.
  • Investment activities of (4.88B) provide weak support for R&D spending of 11.20B, which is -0.44x, suggesting potentially insufficient investment in innovation relative to other capital deployment.
  • Cash reserves of 11.44B provide limited coverage of acquisition spending of (3B), which is -3.81x, suggesting aggressive expansion might strain liquidity if market conditions deteriorate.
  • Operating earnings of 17.51B show weak coverage of depreciation charges of 11.23B, with a 1.56 ratio indicating high capital intensity and potential reinvestment needs.

Breakdown of Revenue (2021)

Peer comparison

Companies in the Drug Manufacturers - General
S.No. Ticker Company Market Cap P/E P/S Total Debt (Qtr)
1 LLY ELI LILLY & Co 940.24 Bn 84.66 19.19 42.51 Bn
2 JNJ Johnson & Johnson 656.09 Bn 49.20 10.65 45.80 Bn
3 AMGN Amgen Inc 389.67 Bn 89.91 26.60 54.59 Bn
4 ABBV AbbVie Inc. 363.54 Bn 129.05 16.59 68.74 Bn
5 MRK Merck & Co., Inc. 320.49 Bn 202.84 7.87 41.37 Bn
6 NVS Novartis Ag 304.60 Bn 21.78 5.37 35.46 Bn
7 AZN Astrazeneca Plc 291.12 Bn 30.97 5.01 32.63 Bn
8 NVO Novo Nordisk A S 219.30 Bn 13.62 4.51 20.59 Bn

Industry comparisons

Current Valuation Value Ind Avg Percentile
EV to Assets EV to Assets 2.95 2.39
EV to Cash from Ops. EV/CFO 17.08 27.43
EV to Debt EV to Debt 9.22 6.41
EV to EBIT EV/EBIT 18.68 29.56
EV to EBITDA EV/EBITDA 11.33 21.95
EV to Free Cash Flow [EV/FCF] EV/FCF 18.57 39.77
EV to Market Cap EV to Market Cap 1.07 1.28
EV to Revenue EV/Rev 5.77 7.09
Price to Book Value [P/B] P/B 6.60 12.10
Price to Earnings [P/E] P/E 21.78 73.51
Dividend Metrics Value Ind Avg Percentile
Dividend Coverage Ratio Div Coverage (Qtr) 1.79 0.92
Dividend Payout Ratio % Div Payout % (Qtr) 53.70 65.92
Dividend per Basic Share Div per Share (Qtr) 3.87 2.81
FCF Dividend Payout Ratio % FCF Div Payout % (Qtr) 42.04 37.42
Interest Coverage Int. cover (Qtr) 15.31 20.26
Growth Metrics Value Ind Avg Percentile
Capex Growth (1y) % Capex 1y % (Qtr) -19.92 -9.54
Cash and Equivalents Growth (1y) % Cash & Equiv 1y % (Qtr) -0.21 96.72
Dividend Growth (1y) % Div 1y % (Qtr) 2.46 2.18
EBIAT Growth (1y) % EBIAT 1y % (Qtr) 16.69 74.22
EBITDA Growth (1y) % EBITDA 1y % (Qtr) 16.54 29.18
EBIT Growth (1y) % EBIT 1y % (Qtr) 19.56 66.23
EBT Growth (1y) % EBT 1y % (Qtr) 19.99 310.53
EPS Growth (1y) % EPS 1y % (Qtr) 21.79 352.41
FCF Growth (1y) % FCF 1y % (Qtr) 7.77 47.43
Gross Profit Growth (1y) % Gross Profit 1y % (Qtr) 10.49 8.06
Liquidity Ratios Value Ind Avg Percentile
Asset Utilization Ratio Asset Util Ratio (Qtr) 0.51 0.38
Cash Payout Ratio Cash Payout (Qtr) 0.38 0.27
Cash Ratio Cash Ratio (Qtr) 0.42 2.11
Current Ratio Curr Ratio (Qtr) 1.12 6.17
Debt to Equity Ratio Debt/Equity (Qtr) 0.77 -0.40
Interest Cover Ratio Int Coverage (Qtr) 15.31 20.26
Times Interest Earned Times Interest Earned (Qtr) 15.31 20.26
Profitability Value Ind Avg Percentile
EBITDA Margin % EBITDA Margin % (Qtr) 50.70 -13.61
EBIT Margin % EBIT Margin % (Qtr) 30.90 -10.56
EBT Margin % EBT Margin % (Qtr) 28.88 -25.71
Gross Margin % Gross Margin % (Qtr) 75.80 64.91
Net Profit Margin % Net Margin % (Qtr) 24.70 -34.99