Will Novartis (NVS) Disappoint in Q3 Earnings Season?

Novartis (NVS) is set to report third-quarter 2014 results on Oct 28.

Last quarter, the company reported earnings in line with the Zacks Consensus Estimate.

However, on an average, Novartis has missed the Zacks Consensus Estimate by 2.6% in the last four successive quarters. Let's see how things are shaping up for this announcement.

Factors at Play

Novartis has a presence in the field of oncology, neuroscience, ophthalmology and generics. In order to combat the slowdown in established markets, Novartis has shifted its focus to emerging markets where sales growth has been higher. This should positively impact results.

However, Novartis is currently facing generic competition for some of its key drugs such as Gleevec, Zometa and Diovan Mono. Diovan Mono was one of the key drugs of Novartis and the entry of generics in Jul 2014 will hit sales in the second half. Generics are projected to impact sales by $2.6 billion in 2014.

Meanwhile, we are encouraged by Novartis' efforts to realign its portfolio in order to focus on its core business of pharmaceuticals, eye care and generics. The proposed acquisition of the oncology products arm from GlaxoSmithKline (GSK) and divestment of its Vaccines business is a step in the right direction. It will broaden the company’s portfolio and enable it to focus better on its core capabilities besides contributing immensely to the top line. We expect margins to improve as well with the realignment of resources.

Earnings Whispers?

Our proven model does not conclusively show that Novartis is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP: Earnings ESP represent the difference between the Most Accurate estimate and the Zacks Consensus Estimate. Novartis’ Most Accurate estimate as well as the Zacks Consensus Estimates currently stands at $1.29. Hence, the company’s ESP stands at 0.00%.

Zacks Rank: Novartis’ Zacks Rank #3 (Hold) when combined with a 0.00% ESP, makes surprise prediction difficult.

We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Other Stocks to Consider

Here are some companies you may want to consider as our model shows that they have the right combination of elements –- a positive Zacks Earnings ESP and a Zacks Rank #1, 2 or 3 –- to post an earnings beat this quarter.

Teva Pharmaceutical Industries Ltd. (TEVA) has an earnings ESP of +5.79% and carries a Zacks Rank #2 (Buy). It is scheduled to report third-quarter results on Oct 30.

Hospira Inc. (HSP) has an earnings ESP of +7.55% and carries a Zacks Rank #3. It is expected to report third-quarter results on Nov 6.

Read the Full Research Report on NVS
Read the Full Research Report on HSP
Read the Full Research Report on TEVA
Read the Full Research Report on GSK


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