Novartis stock is a Hold as for now

Novartis (NVS), a Swiss pharmaceutical company announced recently that it was getting out of the technology due to the challenges with formulation and delivery and due to only a few medical applications that have the potential. Last week, the market saw the Biotech selloff which had resulted in NASDAQ 100 Index down by more than 3%.

Novartis stock Price as on 18^th April 2014 was $84.67 down 0.31% from previous day’s closing price of $84.41. Since the start of 2014, NVS stock price has increased by 5.34% in value. In the last six months, NVS shares have appreciated 12.53% and are up 17.8% in the last one year.

If we analyze the financial statement of Novartis, their Revenues are up 2% in 4QFY13 (yoy) while Net income decreased 0.8% in the same period. NVS Earnings per share were $0.83, down by 2.5% from Earnings in the year ago period.

Novartis has a price to earnings ratio of 22.8x on Earnings of $3.70. Its competitor GlaxoSmithKline (GSK) has a P/E multiple of 14.07 with Earnings of $3.73. Even Though GSK is trading at a discount to Novartis, its Earnings are at premium to NVS.

Novartis Net cash flow from operations (CFOs) decreased in 4QFY13 by 4% from the year ago quarter. Their capital expenditures have increased in the current quarter by 15% year over year. Their capex in 4QFY13 was $1.12 billion. Free cash flows (FCFs) for Novartis in the current quarter were $3.3 billion down 9% from year ago quarter.

Novartis offers a dividend of $2.43 on price of $84.67 yielding 3.26%. However its competitor GSK has a dividend yield of 4.70% with a price of $52.51.

As we move forward, analysts expect the stock price of Novartis to reach a consensus estimate of $87.8 that is an increase of 3.7% from the current share price.

But one factor where Novartis is ahead of GSK is the debt to equity ratio. With a Debt to Equity ratio of 260.75, GSK is a highly leveraged company and perhaps a much riskier investment than NVS whose ratio is 24.10.