Investors Willing to Wait on Novartis (NVS) Could Reap Dividends - Barron's

November 21, 2012 8:37 AM EST
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Price: $70.17 -0.68%

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Novartis (NYSE: NVS) is ticking higher in early trading Wednesday morning amid a positive article out of Barron's.

However, only fools rush in. Barron's thinks Novartis will make a good story next year. Over the last two years, shares have gained just 8 percent, lagging both the S&P as well as the NYSE Arca Pharma Index.

The action comes as Novartis is still struggling to make up revs following lost patent protection for its blood pressure drug Diovan, not to mention price cuts in Europe and manufacturing issues.

Primarily, Novartis' top-line is composed 54 percent from sales of Diovan, as well as cancer drugs Zometa and Gleevec. Diovan's sales are expected to fall to $4 billion this year and investors are keeping an eye on the other two drugs, with Zometa losing patent protection in 2013 followed by Gleevec in 2016.

Revs are expected to come in at $57 billion or so this year, with EPS of $5.21 a 6 percent decline from the previous year. For 2013, cost-cutting measures should improve Novartis' bottom-line to $5.30 per share and one Bernstein analyst expects profit to grow by a 5 percent to 10 percent annual clip straight through 2020.

How's that? Glad you asked. Novartis is going to bank on previously released drugs Afinitor, a kidney cancer drug, Gilenya, an MS drug, and Galvus, a diabetes drug. In addition, the pharma is looking for FDA approval of its heart failure drug RLX030 as well as filing for approval of QVA149, a respiratory drug, in 2014.

Novartis also won support from a European advisory panel for its meningitis B vaccine Bexsero, Barron's notes. That clears the way for approval within three months.

Some detractors on the stock is valuation, with Novartis being a little richer to own than Pfizer (NYSE: PFE) and Sanofi (NYSE: SNY). The company can't afford prolonged delays on approval and some bears on the stock don't see its bottom-line expanding until 2014.

But, with a dividend that currently yields 4 percent and a robust pipeline in play, investors willing to wait it out will get paid now...and later. Shares are indicated for a higher open Wednesday.

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