EQUITY RESEARCH: NOVARTIS AG

Novartis AG (“Novartis”) is one of the top market players in the pharmaceutical industry, with a 2020 market cap of $215Bn and operations in 155 countries. The company is divided in two segments, Innovative Medicines which includes Gene Therapies and Oncology and Sandoz that focus on generic pharmaceuticals and biosimilars. The motivation for choosing this company and industry was because we are in a pandemic (Covid-19) and the world’s attention is focused on the pharmaceutical industrial to produce the vaccine. As it becomes more evident that is one of the most important industries in the world, I was curious to know how these companies operate and what they are doing to overcome the current situation. The main methods used for Novartis valuation were the DCF, APV and Market-Based Valuation Methods. The company has a BUY Recommendation, with a 2022 YE price target of $103,32, representing an upside potential of 21% from the Sep. 10th, 2021, closing price of $85,43, with medium risk. The current share price undervaluation is mainly due to some government-imposed industry-wide price reductions, some restrictions to access healthcare and to patent expiration, what can directly impact the business revenues. In terms of the new trends in the industry, Novartis is already using technology and digitalization across its operations and is working hard to be a global ESG leader. Moreover, the company has a dividend policy to increase the dividend every year, which is possible since the company has a solid CFO YoY. The reference date for this equity research is 2021.