How Strong Is Novartis as 2025 Begins After Its Sandoz Spin-Off?

If you are weighing your options with Novartis, you are certainly not alone. Investors everywhere continue to debate whether now is the moment to buy, hold, or watch from the sidelines as this pharmaceutical powerhouse charts its next move. Novartis has shown a steady hand in a volatile sector, and even a quick look at recent performance gives reason to take notice. Over the last year, the stock notched a 4.1% gain. If you stretch that window to three or five years, the growth has been even more compelling at 54.0% and 56.6% respectively. While shares dipped slightly by 3.5% over the past month, they have rebounded 0.6% in the last seven days. This is an encouraging sign in the wake of broader market shifts and ongoing interest in the healthcare sector’s resilience.

There is more to the story than just recent price moves, though. Novartis currently sports a value score of 5 out of 6 across major valuation criteria, suggesting the company looks undervalued in most respects. That is a strong signal for anyone seeking quality stocks with reasonable entry points. In the next sections, we will dig into the valuation models behind that score and see what they really tell us about where Novartis stands today. But stick around, because at the end, I will share a smarter way to interpret valuation scores that could give you an edge beyond the usual metrics.

Novartis delivered 4.1% returns over the last year. See how this stacks up to the rest of the Pharmaceuticals industry.

Approach 1: Novartis Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow (DCF) model estimates a company’s true value by projecting its future cash flows and then discounting them back to the present using a required rate of return. This approach aims to determine what a business is worth based on its ability to generate cash in the years ahead, rather than simply on market sentiment or multiples.

For Novartis, the latest data shows a trailing twelve-month Free Cash Flow (FCF) of $17.98 Billion. Analyst projections see this figure growing in the coming years, with estimates reaching $20.85 Billion by the end of 2029. For the next decade, further cash flow values were extrapolated beyond the period covered by analyst consensus, showing steady if modest growth. This implies management is expected to maintain healthy cash generation capability well into the future.

Based on these inputs, the DCF model estimates the intrinsic value of Novartis shares at $269.28. This result suggests the stock is trading at a substantial 63.5% discount to its calculated worth. This significant margin of undervaluation signals a potential buying opportunity for those looking to invest in a major pharmaceutical player with consistent cash flows.

Result: UNDERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Novartis.

Our Discounted Cash Flow (DCF) analysis suggests Novartis is undervalued by 63.5%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: Novartis Price vs Earnings (PE)

The price-to-earnings (PE) ratio is widely recognized as a practical metric for valuing profitable companies like Novartis. It helps investors understand how much the market is willing to pay today for a company’s earnings power, making it especially relevant for firms with steady and predictable profit streams.

Growth expectations and perceived risk are central in determining what a "normal" or "fair" PE should be. Higher growth tends to justify a higher PE ratio, as investors are willing to pay more for future profits, while higher risk generally pulls the ratio lower to compensate for uncertainty. Industry context and company-specific factors play an important role as well.

Novartis currently trades at 17.49x earnings. To put this in perspective, this is below the Pharmaceuticals industry average of 24.26x and well under the average for its closest peers, which stands at 69.78x. These comparisons suggest a discount, but there is a more nuanced benchmark to consider: the Simply Wall St "Fair Ratio." This proprietary metric, calculated at 32.88x for Novartis, takes into account not just the industry but also the company’s individual growth outlook, risk profile, profit margins, and size. Because it adjusts for these business-specific factors, it offers a more precise lens than a simple peer or sector average.

With Novartis’s actual PE ratio notably lower than its Fair Ratio, the evidence points to meaningful undervaluation based on earnings potential rather than just headline multiples.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Novartis Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives. A Narrative is your own story for a company, a simple and powerful way to connect what you believe about Novartis’s future to your financial forecasts and estimate of fair value. Instead of just relying on numbers alone, you can write your perspective, including your assumptions for future revenue, earnings, and margins, and see how those beliefs directly shape your valuation outlook.

Narratives link the company’s big picture strategy, risks, and growth drivers to a clear financial forecast, which then connects to a current fair value. They are easy to create and track using the Simply Wall St platform, inside the Community page where millions of investors share their views. Narratives help you decide when to buy or sell by comparing your fair value to the current share price, and they automatically update when new news, results, or market shifts occur, keeping your decisions timely and relevant.

For example, some investors may see Novartis’s innovations in advanced therapies and expansion in China driving future upside and set a higher fair value, while others focus on patent risks and pricing pressure and prefer a much lower target. Narratives make it simple to visualize and act on these differences, helping you invest with more conviction and clarity.

Do you think there's more to the story for Novartis? Create your own Narrative to let the Community know!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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