Novartis Looks Appealing, Based on Drug Pipeline and Planned Spinoff

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These reports, excerpted and edited by Barron’s, were issued recently by investment and research firms. The reports are a sampling of analysts’ thinking; they should not be considered the views or recommendations of Barron’s. Some of the reports’ issuers have provided, or hope to provide, investment-banking or other services to the companies being analyzed.

Novartis

NVS-NYSE

Buy • Price $83.61 on Aug. 24

by Edward Jones

Novartis develops branded, innovative drugs. We expect that its growth will accelerate over the long term, driven by one of the strongest drug pipelines in the industry. Novartis has an extensive number of cancer treatments and is a leader in cell and gene therapy. Its generic-drug business, Sandoz, produces complex injectable drugs (i.e., biosimilars). Novartis intends to spin off this business to shareholders in the second half of 2023. Following the spinoff, Novartis will be able to focus more on its faster-growing and more profitable branded drug business.

Snap-on

SNA-NYSE

Outperform • Price $223.95 on Aug. 24

by Barrington Research

Yesterday, we sponsored an institutional investor meeting at Snap-on’s Tools Group manufacturing facility in Milwaukee. Senior management participating included CEO Nick Pinchuk and CFO Aldo Pagliari. The meeting gave us a deeper dive into Snap-on’s competitive manufacturing advantages. Throughout, the emphasis was on specialized manufacturing capabilities, coupled with ongoing efficiencies.

Snap-on is benefiting from a favorable growth environment, driven by technicians encountering complex repairs through the proliferation of technology on vehicles. Snap-on increased its sales from $2.6 billion in 2010 to $4.25 billion in 2021, as its operating margin went from 12.1% to 20%. We have raised our adjusted EPS estimates for 2022 and 2023 to $16.37 and $17.22, from $16.10 and $16.98. Stock-price target: $280.

Nvidia

NVDA-Nasdaq

Overweight • Price $172.22 on Aug. 24

by Wells Fargo

While there is no debating that Nvidia’s F3Q23 guidance was meaningfully worse than expected, we counterintuitively believe that this could prove to be the positive reset/flush that investors have been waiting (or hoping) for.

We see investors remaining positively biased to NVDA’s deepening platform strategy, which addresses long-term secular growth drivers. NVDA has been challenged by a persistently unquantifiable crypto overhang concern, and a clearing of channel inventory going into the next-generation Lovelace cycle. Investor sentiment could begin to improve, [based on] some significant product cycle dynamics in late 2022 and 2023.

We are adjusting our fiscal 2023, 2024, and 2025 [revenue/EPS] estimates from $29.0 billion/$3.86, $32.4 billion/$5.00, and $37.1 billion/$6.00, to $27.3 billion/$3.41, $30.9 billion/$4.41, and $37.3 billon/$5.64, respectively.

Intuit

INTU-Nasdaq

Outperform • Price $449.56 on Aug. 23

by Evercore ISI

Intuit delivered a strong finish to its 2022 fiscal year and offered guidance for both revenue and EPS that was above our and the Street’s expectations. While there were some pockets of softness (i.e., Mailchimp), the upbeat guidance helps illustrate the breadth of INTU’s portfolio today versus a few years ago, especially as it relates to the small-business segment. Intuit remains one of the best compounding stories in software, and we expect more details on its long-term strategy at its analyst day on Sept. 29. We are moving our price target to $601.

Toll Brothers

TOL-NYSE

Sector Perform • Price $45.63 on Aug. 23

by RBC Capital Markets

[We have cut] our fiscal year 2022/2023 EPS estimates by 9% and 15%, respectively, to $9.19 and $9.45, as we adjust for the [new single-family home] selling-pace realities following the sharp drop this quarter. While the month-to-month deposit improvement in August may be encouraging to some, it’s a modest improvement from very low levels, [despite about a three times ramp-up in incentives], and now [mortgage] rates have moved back up. However, we remain at Sector Perform on Toll Brothers because TOL’s [order] backlog, relatively limited cancellation risk, and continued gross margin strength provide support into FY23. We maintain our $48 price target on the stock.

Hibbett

HIBB-Nasdaq

Neutral • Price $57.36 on Aug. 24

by Seaport Research PartnersHibbett reported a slight sales miss and bigger EBIT [earnings before interest and taxes] and earnings per share misses for its second quarter, but the results were strong, measured on a three-year basis, and much better than they were in the first quarter.

The [retailer whose stores, located in small and midsize communities, specialize in athletic-inspired fashion products, including footwear] also raised its sales outlook for the year and reiterated its prior earnings guidance. Hibbett now expects second-half same-store sales to be up from the level in prior guidance. We calculate implied second-half sales growth around 17%-21%.

Regarding [the second-quarter sales shortfall], the company said: “We believe some of our back-to-school sales shifted into the third quarter, as consumers delayed shopping until closer to school start dates.”

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