NVS

We rate NOVARTIS AG (NVS) as a Buy with a composite score of 73.6/100 at a current price of $166.79. The stock scores above average across the majority of our six quantitative factors and ranks #24 out of 7,333 stocks in our universe, reflecting a favorable risk-reward profile.

The rating is primarily driven by strength in stability (97th percentile) and value (90th percentile), which together account for the majority of the composite score. All factors score above the 40th percentile, indicating no material weakness in the quantitative profile. We assign a Wide Moat rating (80/100), Low uncertainty, and Exemplary capital allocation.

Key items to watch: quarterly earnings execution and sector-level competitive dynamics. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

NOVARTIS AG holds a top-quartile position (#11 of 50) within the Manufacturing sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 73.6/100 places it at rank #24 in our full 7,333-stock universe. With a $198.9B market capitalization, NOVARTIS AG operates at meaningful scale within the Manufacturing sector, providing competitive advantages in distribution, procurement, and customer reach.

The outlook is moderately positive, with revenue expanding at 11% and favorable momentum (69th percentile) reflecting constructive market sentiment. The business shows steady execution, though the growth rate is below the levels typically associated with high-conviction growth stories. Momentum confirmation provides support for the current price level.

The margin cascade tells an important story: gross margins of 75% (+32.7pp vs sector) narrow to operating margins of 28% (+26.8pp vs sector) and net margins of 23.1%, yielding a gross-to-net conversion rate of 31%. This efficient conversion suggests well-controlled operating costs and limited margin leakage between the gross and net levels.

At a current price of $166.79, NOVARTIS AG appears undervalued relative to its fundamentals. Our value factor score of 90/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. The stock screens as attractively priced on a majority of these measures, suggesting the market may be underappreciating the underlying fundamentals.

The stock currently trades at a P/E of 27.8x (a 25% premium to the sector median of 22.3x), EV/EBITDA of 5.6x (discounted to peers), P/B of 7.0x, P/S of 1.5x. The above-sector P/E multiple suggests the market is pricing in superior growth or quality, which our analysis partially supports given strong quality metrics.

We assign a Low uncertainty rating to NOVARTIS AG. The company exhibits strong financial stability with a beta of 0.24, and a stability factor in the 97th percentile. The predictable nature of the business model and solid financial position reduce the range of potential outcomes, giving us confidence in our fair value estimate.

Specific risk factors that inform our assessment include: low beta of 0.24 — while defensive, this may indicate limited upside participation in bull markets. Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 97th percentile and quality factor at the 83th percentile provide a quantitative summary of the overall risk landscape.

Key risk mitigants include: healthy gross margins of 75% provide a buffer against cost pressures; above-average stability (97th percentile) suggests predictable business dynamics; large-cap scale ($198.9B) provides resilience. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile is favorable for long-term investors.

We rate NOVARTIS AG's capital allocation as Exemplary. Management demonstrates a strong track record of balancing reinvestment with shareholder returns, evidenced by returns on equity of 108.4%, a 3.88% dividend yield, best-in-class net margins of 23.1%. Exemplary allocators typically generate returns on equity above 20% while maintaining debt-to-equity below 50% — NOVARTIS AG meets this high bar.

The balance sheet remains conservatively managed, providing financial flexibility for opportunistic investments while maintaining a margin of safety for shareholders. The company returns capital via a 3.88% dividend yield, and the combination of 46.7% return on assets and controlled leverage suggests management is deploying capital at rates well above the cost of capital — the hallmark of exemplary stewardship.

In summary, NOVARTIS AG receives a Buy rating with a composite score of 73.6/100 (rank #24 of 7,333). Our quantitative framework assigns a Wide Moat (80/100, trend: stable), Low uncertainty, and Exemplary capital allocation. The average factor score across quality, value, momentum, stability, and investment is 76/100.

Our analysis supports a constructive view on NOVARTIS AG. The combination of a wide competitive moat, low uncertainty, and exemplary capital allocation creates a risk-reward profile that favors accumulation at current levels. We recommend investors consider adding this name to portfolios aligned with the stock's risk profile.