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What’s in Store for Novartis (NVS) This Earnings Season?


Novartis AG NVS is scheduled to report first-quarter 2018 results on Apr 19.

The Swiss pharmaceutical company’s stock has rallied 14.7% in the last 12 months compared with the industry's 10.6% gain.

Novartis has an excellent track record. In the last quarter, Novartis delivered a positive earnings surprise of 3.4%. The company posted an average positive earnings surprise of 3.42% in the trailing four quarters. Let's see how things are shaping up for this announcement.

Factors at Play

Concurrent with the 2017 results, Novartis provided guidance for 2018. Novartis expects net sales in 2018 to grow low to mid-single digit. Novartis operates under three segments: Innovative Medicines (Pharmaceuticals), Alcon and Sandoz (Generics). Innovative Medicines is projected to grow in mid-single digit. Revenues from Sandoz is expected to be broadly in line or decline slightly. Alcon sales are estimated to grow in low to mid-single digits.

The Innovative Medicines division recorded sales of $8.8 billion in 2017 as it combatted generic and pricing pressure. Novartis has a strong oncology portfolio of drugs like Afinitor, Exjade, Jakavi, Zykadia, Tasigna, Jadenu, and Kisqali. Growth products — Cosentyx, Entresto, Promacta/Revolade, Jakavi, Tafinlar + Mekinist and Gilenya continues to drive the top line.

Psoriasis Cosentyx achieved multi-blockbuster drug status in 2017 on the back of strong growth in its three approved indications while Entresto’s sales benefited from continued access improvements and expansion of sales force in the United States. The approval of Kymriah for acute lymphoblastic leukemia is a major boost for Novartis, given the potential in the CAR-T therapy space.

Additionally, Novartis' generic arm, Sandoz, is making efforts to strengthen its biosimilars portfolio. The launches of Rixathon, the biosimilar version of Roche’s RHHBY Rituxan (rituximab) and Erelzi, the biosimilar of Amgen’s AMGN Enbrel in EU has boosted the company’s portfolio.

However, sales from this division is projected to decline due to continued industry wide pricing pressures in the United States.

Meanwhile, the loss of exclusivity of some of the key drugs in Novartis' portfolio will continue to hurt the company's top line. The company's blockbuster drug, Diovan, is facing stiff generic competition in the United States, the EU and Japan. Gleevec lost exclusivity in the United States in February 2016 and in the EU in December 2016, thereby leading to generic competition. Exforge is also facing generic competition in the United States and the EU. Further, the oncology drugs are facing new competition in the form of immuno-oncology therapies.

The ophthalmology division, Alcon was struggling and consequently, Novartis took a few steps to revive the business. The turnaround has been encouraging and management believes creating a standalone company via a capital markets exit could create additional shareholder value. A decision is expected in the first half of 2019, depending on Alcon’s performance in the future.

Earnings Whispers

Our proven model does not conclusively show that Novartis will beat on earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to be able to beat estimates. Unfortunately, that is not the case here, as you will see below.

Zacks ESP: Earnings ESP for Novartis is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $1.25. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter.

Zacks Rank: Novartis currently carries a Zacks Rank #3. Although the rank is favorable, the company's 0.00% ESP makes surprise prediction difficult.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Novartis AG Price, Consensus and EPS Surprise

Novartis AG Price, Consensus and EPS Surprise | Novartis AG Quote

Stock to Consider

Here is one stock in the healthcare sector that you may want to consider, as our model shows that it has the right combination of elements to post earnings beat this quarter.

Pfizer Inc. PFE has an Earnings ESP of +2.62% and a Zacks Rank #2. The company is scheduled to release first-quarter results on May 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

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