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Novartis (NVS) Q4 Earnings: Stock Likely to Disappoint?
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Swiss pharmaceutical company Novartis AG (NVS - Free Report) is scheduled to report fourth-quarter and full year 2016 results on Jan 25.
A look at Novartis’ share price movement in the last 12 months shows that the stock has underperformed the Zacks classified Large Cap Pharma industry. Its shares have lost 12.5% compared with the 0.2% decline for the industry.
In the last reported quarter, Novartis recorded a positive earnings surprise of 4.24%. Overall, the company has posted an average negative earnings surprise of 0.56% in the four trailing quarters. Let’s see how things are shaping up for this announcement.
Factors to Impact the Quarter
Novartis operates under three segments: Innovative Medicines (Pharmaceuticals), Alcon and Sandoz (Generics).
Although the company expects 2016 to be a transformative year, it has been facing challenging conditions over the past few quarters. The loss of patent protection for Gleevec in the U.S. had impacted the top line.
Innovative Medicines is likely to bear the brunt of competition due to the genericization of Gleevec/Glivec in the U.S. While growth products like Cosentyx, Gilenya and new launches such as Entresto continue to positively impact top line, we believe generic competition will continue to impact sales for both the fourth quarter and full year 2016. Gleevec was slated to lose patent protection in Europe in Dec 2016. Novartis also expected additional generic entrants for the drug in the U.S.
The company’s ophthalmologic division, Alcon, continues to face challenges due to a slowdown in cataract equipment placements and weak sales of intraocular lenses. Vision care performance in North America is disappointing. Going forward, we expect these factors to dampen sales at the segment.
On the other hand, Novartis’ generic arm, Sandoz, in its efforts to strengthen the biosimilars portfolio and pipeline, should perform well. The company has four biosimilars approved and is also on track to record $1 billion of sales in 2016, with 50% of that coming from the U.S. Zarxio’s sales exceeded $100 million since launch while Glatopa has captured a 40% market by the end of third quarter. Sales from Sandoz division are expected to grow in the fourth quarter.
Meanwhile, the company’s decision to increase spending on Entresto to build a U.S. primary care field force and incremental medical support will drive expenses in the fourth quarter. The unfavorable movements in foreign exchange rates will negatively impact the bottom line by 1% in the fourth quarter. The unfavorable foreign exchange rates are also likely to impact sales by 1% and earnings by 3% for full year 2016. Sales are estimated to grow broadly in line with prior year in constant currencies for 2016.
Earnings Whispers
Our proven model does not conclusively show that Novartis will beat 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: The Earnings Surprise Prediction or Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +0.0%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Novartis carries a Zacks Rank #4 (Sell). As it is, we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Here are some other health care stocks that you may want to consider, as our model shows that they too have the right combination of elements to post an earnings beat this quarter.
Eli Lilly and Company (LLY - Free Report) has an Earnings ESP of +3.06% and a Zacks Rank #3. The company is scheduled to release results on Jan 31.
Allergan plc has an Earnings ESP of +0.80% and a Zacks Rank #3. The company is scheduled to release results on Feb 8.
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Today, you are invited to download the full list of 220 Zacks Rank #1 "Strong Buy" stocks – absolutely free of charge. Since 1988, Zacks Rank #1 stocks have nearly tripled the market, with average gains of +26% per year. Plus, you can access the list of portfolio-killing Zacks Rank #5 "Strong Sells" and other private research. See these stocks free >>
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Novartis (NVS) Q4 Earnings: Stock Likely to Disappoint?
Swiss pharmaceutical company Novartis AG (NVS - Free Report) is scheduled to report fourth-quarter and full year 2016 results on Jan 25.
A look at Novartis’ share price movement in the last 12 months shows that the stock has underperformed the Zacks classified Large Cap Pharma industry. Its shares have lost 12.5% compared with the 0.2% decline for the industry.
In the last reported quarter, Novartis recorded a positive earnings surprise of 4.24%. Overall, the company has posted an average negative earnings surprise of 0.56% in the four trailing quarters. Let’s see how things are shaping up for this announcement.
Factors to Impact the Quarter
Novartis operates under three segments: Innovative Medicines (Pharmaceuticals), Alcon and Sandoz (Generics).
Although the company expects 2016 to be a transformative year, it has been facing challenging conditions over the past few quarters. The loss of patent protection for Gleevec in the U.S. had impacted the top line.
Innovative Medicines is likely to bear the brunt of competition due to the genericization of Gleevec/Glivec in the U.S. While growth products like Cosentyx, Gilenya and new launches such as Entresto continue to positively impact top line, we believe generic competition will continue to impact sales for both the fourth quarter and full year 2016. Gleevec was slated to lose patent protection in Europe in Dec 2016. Novartis also expected additional generic entrants for the drug in the U.S.
The company’s ophthalmologic division, Alcon, continues to face challenges due to a slowdown in cataract equipment placements and weak sales of intraocular lenses. Vision care performance in North America is disappointing. Going forward, we expect these factors to dampen sales at the segment.
On the other hand, Novartis’ generic arm, Sandoz, in its efforts to strengthen the biosimilars portfolio and pipeline, should perform well. The company has four biosimilars approved and is also on track to record $1 billion of sales in 2016, with 50% of that coming from the U.S. Zarxio’s sales exceeded $100 million since launch while Glatopa has captured a 40% market by the end of third quarter. Sales from Sandoz division are expected to grow in the fourth quarter.
Meanwhile, the company’s decision to increase spending on Entresto to build a U.S. primary care field force and incremental medical support will drive expenses in the fourth quarter. The unfavorable movements in foreign exchange rates will negatively impact the bottom line by 1% in the fourth quarter. The unfavorable foreign exchange rates are also likely to impact sales by 1% and earnings by 3% for full year 2016. Sales are estimated to grow broadly in line with prior year in constant currencies for 2016.
Earnings Whispers
Our proven model does not conclusively show that Novartis will beat 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: The Earnings Surprise Prediction or Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +0.0%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Novartis carries a Zacks Rank #4 (Sell). As it is, we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Novartis AG Price and Consensus
Novartis AG Price and Consensus | Novartis AG Quote
Stocks to Consider
Here are some other health care stocks that you may want to consider, as our model shows that they too have the right combination of elements to post an earnings beat this quarter.
AbbVie , Inc. (ABBV - Free Report) has an Earnings ESP of +0.83% and a Zacks Rank #3.The company is expected to release results on Jan 27. You can see the complete list of today’s Zacks #1 Rank stocks here.
Eli Lilly and Company (LLY - Free Report) has an Earnings ESP of +3.06% and a Zacks Rank #3. The company is scheduled to release results on Jan 31.
Allergan plc has an Earnings ESP of +0.80% and a Zacks Rank #3. The company is scheduled to release results on Feb 8.
The Best Place to Start Your Stock Search
Today, you are invited to download the full list of 220 Zacks Rank #1 "Strong Buy" stocks – absolutely free of charge. Since 1988, Zacks Rank #1 stocks have nearly tripled the market, with average gains of +26% per year. Plus, you can access the list of portfolio-killing Zacks Rank #5 "Strong Sells" and other private research. See these stocks free >>