Novartis beats Q2 2017 estimates, lifts Alcon sales view

The stock of biopharmaceutical company Novartis Ag (NYSE: NVS) is trading near its 12-month high of $86.90. The company reported better than expected fiscal 2017 second-quarter earnings.

However, revenues declined from last year as generic drugs pulled down the revenue of Sandoz. Still, the stock is expected to remain bullish on the basis of an overall impressive performance and the upwardly revised FY17 sales guidance issued for Alcon.

The Basel, Switzerland-based company reported Q2 2017 net income of $1.979 billion, or $0.84 per share, on net sales of $12.242 billion.

In Q2 2016, Novartis recorded net income of $1.806 billion, or $0.76 per share, on revenues of $12.470 billion. Core net income for the recent quarter was $2.866 billion, or $1.22 per share, compared with $2.930 billion, or $1.23 per share, in the similar quarter of 2016. The FactSet analysts’ estimates were $1.14 per share on revenues of $11.83 billion.

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The revenue of Sandoz’ declined 5% y-o- y to $2.451 billion in the second-quarter. However, the sales of Alcon increased unexpectedly by 1% to $1.516 billion.

Innovative Medicines segment continued to perform well. On a constant currency basis, the sales of Cosentyx increased 90% to $490 million. Likewise, the sales of Entresto increased 240% to $110 million. While Promacta reported a 35% growth to $210 million, Jakavi revenue jumped 32% to $186 million.

Region wise, sales in emerging markets increased 4%. In particular, sales in China, Russia, and Brazil grew at 10%, 9% and 8% respectively.

Novartis also received approval from FDA and EMA for Zykadia, a drug candidate for the treatment of non-small cell lung cancer. The company also received approval in the US for Rydapt, a drug candidate for the treatment of mutated acute myeloid leukemia (AML) and three types of systemic mastocytosis. The FDA also issued an orphan drug designation to PDR001, which is prescribed for the treatment of neuroendocrine tumors.

Free cash flow during the second-quarter was $3.2 billion, up 28% from $2.5 billion reported in the prior year quarter. The long-term credit rating of the company remains unchanged at AA- (S&P Global).

Looking forward, the company expects the FY17 sales of innovative medicines and Sandoz to be broadly in line with last year. Novartis now expects the sales of Alcon to growth at low single digits. Previously, the company had forecasted Alcon’s sales to remain stable or growth at low single digits. Thus, considering the strong growth of innovative medicines and reaffirmation of FY17 guidance, we anticipate the stock to record new highs in the days to come.

The stock is trading above the 50-day moving average of 81.84. Furthermore, the main line of the MACD indicator has made a bullish crossover above the signal line. Additionally, the Chaikin money flow index is positive. Thus, we can expect the uptrend to continue.

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