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Novartis Kicks Off $2.5B Share Buyback Program; Street Sees 22% Upside
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Novartis Kicks Off $2.5B Share Buyback Program; Street Sees 22% Upside

Novartis announced on Tuesday that it will initiate a share buyback plan of up to $2.5 billion, which will start immediately and is expected to last into the first half of 2021.

Novartis (NVS) made the announcement ahead of today’s annual “Meet Novartis Management” virtual meeting with investors and industry analysts. The Swiss pharmaceutical company said that the $2.5 billion share buyback is supported by its liquidity and strong balance sheet, capital structure, and existing capital allocation priorities.

“Novartis offers a unique profile as a fully focused medicines company with diversification across therapeutic areas and geographies, while providing exposure to cutting-edge platforms,” said Novartis CEO, Vas Narasimhan. “Our rich pipeline continues to advance, and we highlight many assets that show significant promise. Reflecting our confidence in future growth and success of our pipeline, we are initiating a share buyback.”

As part of a business update, Novartis said it seeks to drive margin expansion and is on track to reach its $2 billion target in cost savings by year-end across its technical operations and business services. In addition, the company said that its technical operations unit has productivity programs in place that are set to generate around $2 billion in mid-term cost reductions.

The drugmaker has a pipeline of 116 assets in Phase 1 or 2 trials, 49 in Phase 3 or undergoing registration and more than 65 new molecular entities. Novartis said that it expects the pipeline to fuel growth in the mid- to long-term, with around 90% potential first-in-class/first-in-indication medicines and about 80% of medicines in areas of high unmet patient need. Novartis plans to present key milestones from mid- to late-stage assets from its pharmaceutical business in 2021 and 2022.

Shares of Novartis are down almost 8% year-to-date, but the stock scores a firmly bullish Strong Buy Street consensus. That’s with 3 recent Buy ratings vs just 1 Hold rating. Meanwhile, the average analyst price target stands at $106.48, indicating 22% upside potential lies ahead over the coming 12 months.

UBS analyst Laura Sutcliffe recently upgraded the stock to Buy from Hold with a $108 price target, even as NVS has underperformed its peers.

“We think the valuation argument is compelling,” Sutcliffe wrote in a note to investors. The analyst expects new products in the pipeline to drive annual earnings growth of an above-average 9%.

Looking ahead, she estimates sales growth will boost Novartis’ free cash flow from its 2019 level of $6.9 billion, to $13.6 billion in 2025. (See Novartis stock analysis on TipRanks)

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