Barclays’ equity derivatives strategists back selling “call” options on Swiss drugmaker Novartis in order to maximise returns, saying they believe Novartis’ shares are overvalued.
Shares in Novartis, which last month posted sales and earnings slightly below the consensus forecast, are down by 0.3 percent at 73.15 Swiss francs in early session trading on Wednesday.
The Barclays derivatives team backs selling “call” options on Novartis due to expire in March with a strike price of 74 Swiss francs - essentially a bet that Novartis will not rise up to the 74 franc level by then.
“The stock is rated ‘underweight’ by our equity analysts with a price target of 61 francs. They see the stock as overvalued as it trades at a premium to the sector in 2015, pricing in a growth scenario despite significant headwind,” writes the Barclays derivatives team.
According to Thomson Reuters StarMine, Novartis is trading on a price-to-forward earnings (P/E) ratio of 15.5 for the next 12 months - representing a higher valuation compared to P/E ratios of 11.4 for French peer Sanofi and 15.2 for Swiss peer Roche.
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