What is NOVN.SW's Intrinsic value?

Novartis AG (NOVN.SW) Intrinsic Value Analysis

Executive Summary

As of May 25, 2025, Novartis AG's estimated intrinsic value ranges from $95.38 to $135.96 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $130.60 +40.8%
Discounted Cash Flow (5Y) $119.55 +28.9%
Dividend Discount Model (Multi-Stage) $100.84 +8.7%
Dividend Discount Model (Stable) $135.96 +46.6%
Earnings Power Value $95.38 +2.8%

Is Novartis AG (NOVN.SW) undervalued or overvalued?

With the current market price at $92.76, the stock appears to be significantly undervalued.

Understanding Intrinsic Value

Intrinsic value represents the "true" worth of a company based on its fundamentals rather than market sentiment. We've employed multiple methodologies to triangulate Novartis AG's intrinsic value, including:

  1. Discounted Cash Flow (DCF): Values the company based on projected future cash flows
  2. Dividend Discount Model (DDM): Values the company based on expected future dividend payments
  3. Earnings Power Value (EPV): Values the company based on its current earnings power, assuming no growth

Weighted Average Cost of Capital (WACC)

The cost of capital is a critical factor in valuation models, representing the required return for investors.

WACC Component Low High
Long-term bond rate 1.0% 1.5%
Equity market risk premium 5.1% 6.1%
Adjusted beta 0.8 0.9
Cost of equity 5.1% 7.5%
Cost of debt 4.0% 4.5%
Tax rate 10.1% 13.8%
Debt/Equity ratio 0.13 0.13
After-tax WACC 4.9% 7.0%

Valuation Methods

1. Discounted Cash Flow (DCF) Valuation

Our DCF model projects cash flows over 5-year and 10-year horizons, with the following key assumptions:

  • Forecast Period: 5-year DCF and 10-year DCF
  • Terminal Growth Rate: 0.0% (range: 3.0% - 5.0%)
  • Discount Rate: 6.0% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $51,722 (FY12-2024) to $79,820 (FY12-2034)
  • Net profit margin expansion from 23% to 23%
  • Capital expenditures maintained at approximately 6% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $146 $331,632M 83.0%
10-Year Growth $159 $360,058M 69.5%
5-Year EBITDA $73 $178,737M 68.5%
10-Year EBITDA $95 $223,882M 50.9%

2. Dividend Discount Model (DDM)

The DDM values a company based on its expected future dividend payments. We used two approaches:

Multi-Stage DDM:

  • Current payout ratio: 60.3%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 6.3%
  • Long-term growth rate: 2.0%
  • Fair value: $100.84 (8.7% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 7.5% (Low) to 5.1% (High)
  • Long-term growth rate: 1.0% (Low) to 3.0% (High)
  • Fair value range: $66 to $265
  • Selected fair value: $135.96 (46.6% from current price)

3. Earnings Power Value (EPV)

EPV assesses a company's value based on its current normalized earnings power, assuming no growth.

EPV Component Value
Normalized Earnings $15,571M
Discount Rate (WACC) 7.0% - 4.9%
Enterprise Value $220,868M - $318,065M
Net Debt $24,114M
Equity Value $196,754M - $293,951M
Outstanding Shares 2,112M
Fair Value $93 - $139
Selected Fair Value $95.38

Key Financial Metrics

Metric Value
Market Capitalization $195948M
Enterprise Value $215750M
Trailing P/E 18.56
Forward P/E 18.74
Trailing EV/EBITDA 8.00
Current Dividend Yield 324.80%
Dividend Growth Rate (5Y) 2.21%
Debt-to-Equity Ratio 0.13

Investment Decision Framework

To determine the most reliable intrinsic value estimate, we weigh each valuation method based on:

  1. Forecast Certainty: DCF methods rely on long-term projections, while earnings power value focuses on current normalized earnings
  2. Business Model Alignment: Dividend models are more appropriate for mature companies with established dividend policies
  3. Historical Accuracy: How well each method has predicted fair value historically

Valuation Weight Matrix

Valuation Method Weight Weighted Value
Discounted Cash Flow (10Y) 30% $39.18
Discounted Cash Flow (5Y) 25% $29.89
Dividend Discount Model (Multi-Stage) 20% $20.17
Dividend Discount Model (Stable) 15% $20.39
Earnings Power Value 10% $9.54
Weighted Average 100% $119.17

Investment Conclusion

Based on our comprehensive valuation analysis, Novartis AG's weighted average intrinsic value is $119.17, which is approximately 28.5% above the current market price of $92.76.

Key investment considerations:

  • Strong projected earnings growth (23% to 23% margin)
  • Consistent cash flow generation
  • Conservative capital structure (Debt/Equity of 0.13)
  • Historical dividend growth of 2.21%

Given these factors, we believe Novartis AG is currently significantly undervalued with the potential for long-term appreciation based on the company's growth trajectory and financial strength.