What's in the Cards for Novartis (NVS) This Earnings Season?

Swiss pharmaceutical company Novartis AGNVS is scheduled to report third-quarter 2017 results on Oct 24.

Novartis' stock has rallied 22.1% year to date compared with the industry 's 21.4% gain.

In the last quarter, Novartis delivered a positive earnings surprise of 4.3%. The company posted an average positive earnings surprise of 3.51% in the trailing four quarters. Let's see how things are shaping up for this announcement.

Factors at Play

Concurrent with the second-quarter results, Novartis reiterated its guidance. Net sales are expected to be broadly in line with the 2016 levels after including the impact of continued genericization of Gleevec/Glivec in the United States and Europe.

Novartis operates under three segments: Innovative Medicines (Pharmaceuticals), Alcon and Sandoz (Generics). Novartis has a strong oncology portfolio of drugs like Afinitor, Exjade, Jakavi, Zykadia, Tasigna, Jadenu, and the recently approved Kisqali. The recent approval of Kymriah for acute lymphoblastic leukemia is a major boost for Novartis, given the potential in the CAR T therapy space. Meanwhile, the FDA has recently approved a label expansion of Zykadia as the first-line treatment of patients with metastatic non-small cell lung cancer.

New products like Cosentyx and Entresto are expected to boost the top line. Cosentyx has been strong and the company has grabbed market shares from rivals like AbbVie, Inc.'s ABBV Humira and Amgen. Inc's AMGN Enbrel. Cosentyx achieved the blockbuster status in 2016 and recorded over $1 billion of sales. While Entresto is expected to record $500 million revenues, sales of Cosentyx are projected to reach $2 billion in 2017.

Additionally, Novartis' generic arm, Sandoz, is making efforts to strengthen its biosimilars portfolio. The company plans to launch five biosimilars of major oncology and immunology biologics across key geographies by 2020. The company is, however, facing significant pricing pressures and this is expected to impact the third-quarter results.

Also, the loss of exclusivity of some of the key drugs in Novartis' portfolio is hurting the company's top line. The company's blockbuster drug, Diovan, is facing stiff generic competition in the United States, the EU and Japan. Gleevec lost exclusivity in the United States in February 2016 and in the EU in December 2016, thereby leading to generic competition. Exforge is also facing generic competition in the United States and the EU. Furthermore, the oncology drugs are facing new competition in the form of immuno-oncology therapies.

The negative impact of generic competition is expected to impact sales by $2.5 billion in 2017.

The company's ophthalmologic division, Alcon, continues to face challenges due to lower surgical equipments sales. Stiff competition faced by intraocular lens and a slowdown in demand for equipment purchases continue to act as dampeners.

Earnings Whispers

Our proven model does not conclusively show that Novartis will beat on earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to be able to beat estimates. Unfortunately, that is not the case here, as you will see below.

Zacks ESP : The Earnings ESP for Novartis is -0.40%. This is because both the Most Accurate estimate is 1.24 and the Zacks Consensus Estimate is pegged at $1.25. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank : Novartis currently carries a Zacks Rank #3. Although the rank is favorable, the company's negative ESP makes its highly unlikely for earnings beat this quarter. As it is, we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Novartis AG Price and EPS Surprise

Novartis AG Price and EPS Surprise | Novartis AG Quote

Stock to Consider

Here is one stock in the healthcare sector that you may want to consider, as our model shows that it has the right combination of elements to post an earnings beat this quarter.

Vertex Pharmaceuticals Incorporated VRTX has an Earnings ESP of +6.84% and a Zacks Rank #1. The company is scheduled to release results on Oct 24. You can see the complete list of today's Zacks #1 Rank stocks here .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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