Novartis Deal Will Strengthen Glaxo's Dividend say Analysts

Glaxo buys full control of consumer joint venture from Novartis, strengthening cash flows for the dividend

Damien Conover, CFA 28 March, 2018 | 7:36AM

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Glaxo’s (GSK) acquisition of the Novartis (NOVN) portion in its consumer healthcare joint venture should strengthen Glaxo’s cash flow generation and further support its dividend. But Morningstar equity analysts don’t expect any major impacts to the fair value estimates for either company. With the acquisition, Glaxo further entrenches itself in the consumer healthcare market, taking full ownership of the joint venture, up from the current 63.5% stake.

With Glaxo’s further entrenchment in consumer healthcare, we expect the brand power around several brands to help reinforce its wide moat. For Novartis, we don’t expect any impact on the firm’s wide moat. We believe the patent protection and pricing power around Novartis’ drug division support the core pillar of its wide moat. Further, we expect the likely redeployment of the deal proceeds toward acquiring more drug assets will reinforce the solid competitive positioning of Novartis’ drug group.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
GlaxoSmithKline PLC1,304.20 GBX-1.50
Novartis AG71.11 CHF-1.03

About Author

Damien Conover, CFA  is an equity analyst and associate director at Morningstar.

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