Novartis: Another Beat, Another Raise

Core Viewpoint - Following the Sandoz spin-off, Novartis is now focused solely on innovative medicines, leading to a significant increase in margins and a stock price rise of 14.96% since the upgrade to a buy rating in April 2024 [1][17]. Financial Performance - In Q2 2024, Novartis reported net revenues of $12.51 billion, an 11% increase year-over-year, with a 9% increase at constant rates, driven by products like Entresto, Kesimpta, Cosentyx, and Kisqali [2][3]. - The EBIT margin rose by 270 basis points to 39.6%, attributed to operating leverage from higher sales [2]. - For the first half of 2024, sales increased to $24.34 billion from $22.24 billion in H1 2023, with an operating income margin improvement of nearly 600 basis points [3]. Dividend and Shareholder Returns - Novartis increased its dividend per share, with total payouts reaching $8.6 billion, making it one of the largest dividend payers globally [1]. - The company has an ongoing buyback plan of up to $15 billion, with approximately $10.1 billion remaining to be executed [12]. Guidance and Future Outlook - Novartis has raised its guidance for core operating income growth to the mid-to-high teens, reflecting strong momentum in key growth drivers [6]. - The company expects no change in net sales but anticipates improved margins, with core operating income projected to grow from low double-digit performance [6]. Product Pipeline and Growth Drivers - Key growth drivers include the acceleration of Cosentyx in the US, with a projected peak sales of $7 billion by 2029, and supportive momentum from Leqvio and Pluvicto [7]. - The pipeline includes promising products like Kisqali and Kesimpta, both with expected peak sales of $4 billion, expiring by 2030-2031 [12]. Market Position and Valuation - Novartis reported sales and EPS that exceeded consensus estimates by 2% and 5%, respectively, indicating a potential stock price upgrade [12]. - The company's core operating margin reached 40.4%, surpassing the consensus of 38.4%, with new guidance approximately 3% higher than current consensus [12][14].