Gauging Novartis’s Valuation This November



A look at Novartis’s Valuation

Novartis AG (NVS) is one of the leading pharmaceuticals companies worldwide and is headquartered in Switzerland. Novartis is focused on developing, manufacturing, and commercializing various pharmaceutical and healthcare products.

Revenues and EPS

Novartis reported revenues of ~$12.4 billion and EPS (earnings per share) of $1.29 for 3Q17, which represented a 2% YoY (year-over-year) rise, compared with ~$12.1 billion in 3Q16. This growth included a 2% rise in revenues at constant exchange rates and a marginal impact from foreign exchange.

NVS’s forward PE

PE (price-to-earnings) multiples represent what one share can buy for an equity investor. On November 29, 2017, NVS was trading at a forward PE multiple of ~16.3x. The industry currently trades at a forward PE multiple of ~13.5x.

Peers GlaxoSmithKline (GSK) and Allergan (AGN) are trading at lower forward PE ratios of 13.1x and 10.8x, respectively, while AstraZeneca (AZN) is trading at a higher forward PE of 20.8x.

NVS’s forward EV-to-EBITDA

On a capital structure neutral basis, Novartis currently trades at a forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) of ~15.3x, which is much higher than the industry’s average of ~10.6x.

Notably, peers GlaxoSmithKline (GSK), AstraZeneca (AZN), and Allergan (AGN) have lower forward EV-to-EBITDA multiples of 8.4x, 14.6x, and 11.6x, respectively. The Vanguard FTSE All-World ex-US ETF (VEU) has 7.6% of its total investments in healthcare companies, as well as 0.9% in Novartis AG (NVS), 0.4% in GlaxoSmithKline (GSK), and 0.4% in AstraZeneca (AZN).

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