Novartis Rating Downgrade by Jefferies

Investing.com — Analysts at Jefferies have lowered their rating for Novartis (SIX:NOVN) (NYSE:NVS) to “hold” from “buy”, reflecting a cautious outlook on the company’s near-term performance.

While the brokerage remains optimistic about Novartis’ long-term potential, factors like upcoming product releases, market dynamics, and revised financial projections have influenced this decision.

Novartis has had a strong year, with its stock price increasing by over 20%. This rise has led Jefferies to believe that much of the potential upside from recent positive developments is already reflected in the current stock price.

Jefferies has also revised its price target to CHF105 from CHF110 per share, signaling only a modest 3% potential upside from current levels. This adjustment suggests that the market may have priced in the benefits from recent upgrades, leaving little room for further immediate gains without substantial new catalysts.

One critical factor in Jefferies’ downgrade is the anticipated delay in market optimism surrounding Novartis’ new products, including Scemblix, Pluvicto, and Fabhalta.

“However, it will take time into 2025 for approvals & ramp-ups to drive wider optimism in the trajectory to 2030+,” the analysts noted. This delay tempers the near-term outlook for Novartis, even though these products are expected to drive substantial long-term growth.

Jefferies analysts have pointed out that while they remain more optimistic than consensus on Novartis’ long-term sales and profit trajectories, their near-term growth projections for 2024 to 2026 are relatively modest.

“However, we see modest 1%-3% consensus upside 2024-26E after the recent upgrade cycle and believe it may take time for approvals and launch ramps to build wider belief beyond this period,” the analysts added.

Jefferies surveyed U.S. doctors regarding Scemblix‘s potential for treating chronic myeloid leukemia. The survey results showed a bullish outlook, with significant market penetration expected by 2029.

Although initial physician feedback is positive, more definitive proof of Scemblix’s effectiveness compared to other treatments is needed, which could slow wider adoption and make near-term prospects less certain.

Pluvicto, another key drug in Novartis’ pipeline, also faces challenges in fully realizing its commercial potential.

While Jefferies maintains a bullish stance on Pluvicto’s peak sales, achieving these figures will require overcoming significant hurdles, such as improving patient access to radioligand therapies and securing earlier-line treatment approvals.

This uncertainty contributes to tempered short-term expectations, despite the drug’s promising outlook.

Jefferies remains bullish on Novartis’ future despite the downgrade, predicting that the company’s sales and profits will surpass current market expectations by 2030.

This optimism is driven by expected successes of key products, including Scemblix, Pluvicto, Fabhalta, Kisqali, and Cosentyx, which are projected to drive significant growth for Novartis in the coming years, solidifying the company’s position in the pharmaceutical market.