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Novartis beats Q3 2017 estimate, reaffirms FY17 sales view

Pharmaceutical company Novartis AG (NYSE: NVS) reported a 2% y-o-y increase in net sales in the third-quarter of fiscal 2017. The company also recorded a 7% jump in Q3 2017 net income.

Further, the September quarter results surpassed analysts’ estimates. Still, the stock fell about 6% last week to close at $80.91. The company postponed its decision to exit eye care unit Alcon. That has turned the stock bearish. However, the sales growth recorded by drugs such as Cosentyx and Entresto, and reaffirmation of fiscal 2017 outlook indicates the possibility of a strong recovery in the stock price.

The Basel, Switzerland-based company reported Q3 2017 net income of $2.083 billion, or $0.89 per share, on revenues of $12.413 billion. That compares with a net income of $1.945 billion, or $0.81 per share, on revenues of $12.126 billion.

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Core earnings for the September quarter 2017 was $3.017 billion, or $1.29 per share, compared with $2.938 billion, or $1.23 per share, in the similar quarter last year. The Zacks Consensus estimate called for earnings of $1.25 per share on revenues of $12.25 billion.

The company operates under three divisions, namely Innovative Medicines (pharmaceutical), Sandoz (Generics), and Alcon (Ophthalmology unit). In the third-quarter, all three divisions reported a growth in the top and bottom line.

The Innovative Medicines division reported a 2% y-o- y increase in sales to $8.30 billion. Drugs such as Cosentyx, Promacta, Entresto, Tafinlar, and Jakavi reported a growth in sales. However, the sales of Gleevec were negatively impacted by the entry of generic drugs in the US and European markets.

The Sandoz division reported sales of $2.60 billion, an increase of 1% from last year. However, pricing pressure resulted in a 13% decline in the US sales. Biopharmaceuticals revenues increased 9%, mainly due to a rise in the sales of Zarxio in the US. Further the launch of Rixathon, a biosimilar version of Roche Holdings’ Rituxan, and Erelzi, a biosimilar version of Amgen’s Enbrel in EU, contributed to a growth in revenue.

The Alcon division posted a 7% rise in sales to $1.50 billion. Surgical sales grew 9%, while vision care sales increased 4%. Vitreoretinal products and Dailies Total1 were primarily responsible for an improvement in the performance of Alcon division.

Novartis also stated that it continues to expect fiscal 2017 net sales to be broadly in line with the previous fiscal year, after including the negative impact of generic drugs on the sales of Gleevec in the US and Europe.

Novartis also announced that its plan to divest or spin off its Alcon division into a separate company is still on the table. For the second successive quarter in a row, Alcon reported a growth in revenue. However, the company said it would like to forge ahead with its divestment plan only after Alcon division records several more quarters of successive top line and bottom line growth. Such a scenario would enable Alcon to command a better valuation if it approaches the financial markets to get listed as a standalone entity. Thus, analysts believe that Alcon will not get divested before 2019.

That disappointed investors, thereby resulting in a decline in the stock price. However, the decision taken by the management is certainly good for the company in the long-term. So, we expect a bounce back in the share price very soon.

Technically, the stock is trading near a major support level of 80. Further, the RSI indicator is in the oversold region. Thus, we expect a bullish reversal in the stock price.

Novartis Stock Price: October 30th 2017

Novartis Stock Price: October 30th 2017

To benefit from the probable uptrend, we wish to invest in a call option offered by a suitable binary broker. The stock should be trading near $80 at the time of investment. Further, the option should be valid for a period of one week.


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