Novartis (NVS 1.10%) is a company in transition. Over the past several years, the Swiss multinational pharma giant has been busy divesting key assets such as its eye care unit Alcon, trimming costs, and reducing staff in an effort to morph into a pure-play prescription drug company. 

Now, Novartis is close to completing this long-winded transition with the upcoming spin-off of its generic drug business, Sandoz, later this year. Is the pharma titan's stock a top buy heading into this key milestone? Let's take a look at the drugmaker's strengths and weaknesses to find out.

Strengths

Novartis sports both a strong balance sheet and credit rating. With a debt-to-equity ratio of 47%, Novartis' balance sheet isn't overly levered, especially compared to many of its big pharma peers. The company also exited 2022 with a respectable A1 rating on its long-term maturities from Moody's. Thus, Novartis has ample financial flexibility to engage in value-creating, business-development activity as opportunities arise.

Unlike many of its peers, Novartis doesn't suffer from an overly narrow portfolio or a high degree of revenue concentration. In fact, the company only sports two medicines that make up nearly 10% of annual revenue (heart failure drug Entresto and psoriasis medication Cosentyx). Novartis also has top-shelf franchises in cancer, neuroscience, immunology, hematology, and rare diseases. Revenue growth, in turn, isn't anchored to one therapeutic area. 

Novartis offers an attractive dividend program, which currently yields 3.6% on an annualized basis. Management has shown a strong commitment to paying an elite dividend since the company's inception. Underscoring this point, Novartis announced its 26 consecutive annual-dividend increase earlier this year. 

Novartis stock trades at a fairly reasonable valuation. At nearly 16 times forward earnings, the drugmaker's shares are modestly undervalued relative to big pharma stocks at large (average forward-looking price-to-earnings (P/E) ratio of 18.2). 

Weaknesses

In 2026, Novartis might face generic competition for both Entresto and Cosentyx -- at least in some countries. Collectively, these two drugs made up roughly 18.5% of the company's total annual sales in 2022. While Novartis ought to have enough new blockbusters to offset these aging superstars, major clinical or regulatory setbacks could undermine this thesis. 

Novartis hasn't splurged on any high-dollar acquisitions of late, putting the onus on its internal pipeline for new growth products. So far, this "build from within strategy" has been bearing fruit. But this approach does depend on a number of inherently risky propositions, such as obtaining positive trial results, convincing regulators to grant market access, market adoption of new medicines, etc. 

With a middle-of-the-pack valuation and a modest long-term growth profile, Novartis stock probably isn't poised to make any major moves to the upside in the near term.   

Verdict

If you're looking for a solid dividend stock, Novartis is definitely worth checking out. The drugmaker sports a diverse revenue stream, a rock-solid balance sheet, a highly reliable dividend, and ample free cash flows. The company also has the financial capacity to feed its dividend program while also pursuing business development opportunities. That's a potent mix for any income stock.

However, Novartis doesn't jump off the page as a top growth stock for these very same reasons. Barring a game-changing acquisition, Novartis is poised to deliver middle-of-the-pack revenue growth over the balance of the decade. As such, the market probably won't reward the company with a premium valuation anytime soon.       

All told, Novartis stock should produce solid returns on capital over the long term, making it a nice addition to any type of portfolio. The company's above-average dividend yield, disciplined approach to capital management, and focus on maintaining steady growth are its most attractive features.