Categories Analysis, Other Industries

Q2 results will help investors merit Novartis’ strategic transformation

Novartis AG (NYSE: NVS) is scheduled to report second-quarter earnings before the opening bell on Thursday, July 18. The Switzerland-based pharmaceutical giant has been undergoing an operational transformation since Vas Narasimhan took charge as its CEO last year.

The upcoming quarterly results will give investors a chance to merit Narasimhan’s efforts in streamlining the company to focus on more its profitable units. Novartis has been jettisoning underperforming segments to create a more lean and profitable firm.

So far, the efforts have been approved by the street: NVS stock has gained 29% in the trailing 52 weeks, compared to a 14% decline by SPDR S&P Pharmaceuticals and 7% gain by the NYSE Arca Pharmaceutical Index.

LISTEN TO: Novartis AG Q1 2019 earnings conference call

On average, analysts expect revenues to decline 12% to $11.5 billion in Q2, as the company continues to shed fat. In April, the company completed the spin-off of Alcon, which was a major revenue-generating unit for Novartis.

Separately, it divested three products to Italian pharmaceutical company Recordati for $390 million, jettisoned a JV with GlaxoSmithKline and sold the US oral solid drugs unit to India-based Aurobindo Pharma.  Novartis is aiming to put its focus on the Innovative Medicines business.

Second-quarter net income is also projected to decline to $1.20 per share, 9 cents lower than last year. In the trailing four quarters, Novartis has surpassed street estimates in three.

READ: Johnson & Johnson beats market estimates in Q2

To drive future growth, Novartis has a strong product pipeline including Zolgensma, a treatment of spinal muscular atrophy, which received approval from the Food and Drug Administration (FDA). It also has Entresto and Cosentyx as important growth drivers, besides an investigational drug for sickle cell disease.  

Though there have been rumors of the company planning to acquire Amarin Corp (NASDAQ: AMRN), the deal has not yet materialized.

The stock has an average 12-month price target of $100, suggesting a 12% upside from the last close.

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