Question

Company Ticker Price per Share Earnings per Share Book Value per Share Abbott Labs ABT 54.35 3.69 13.79 Bristol-Myers-Squibb BMY 25.45 1.93 7.33 GlaxoSmithKline GSK 41.3 3.15 6.03 Johnson & Johnson JNJ 62.6 4.58 18.27 Merck MRK 36.25 3.81 10.86 Pfizer PFE $18.30 $1.20 8.19 Assuming that Novartis AG (NVS) has an EPS of $3.35, based upon the average price - to - book ratio for its competitors, Novartis' stock price is closest to: $39.70 $44.35 $13.00 $22.95

Answer 1

Novartis' Stock Price

Company	Price per share	Book Value per share	Price-to-book ratio
	(a)	(b)	(c)= (a) / (b)
Abbott Labs	54.35	13.79	3.94
Bristol-Myers-Squib	25.45	7.33	3.47
GlaxoSmithKlin	41.30	6.03	6.85
Johnson & Johnson	62.60	18.27	3.43
Merck	36.25	10.86	3.34
Pfizer	18.30	8.19	2.23
TOTAL			23.26

Average Price-to-book ratio = 3.88 Times [23.26 / 6]

Therefore, Novartis' stock price the based on the average price-to-book ratio for its competitors = Earnings per share x Average Price-to-book ratio

= $3.35 per share x 3.88 Times

= $13.00 per share

“Hence, the Novartis' stock price is closest to $13.00”