Novo Nordisk
Haven’t you often been in this situation? Picture this: you spot a stock that catches your eye, recently it could have been Nvidia, Eli Lilly, or Meta, its price surging higher and higher, leaving you feeling like you’ve missed out. But here’s the silver lining—history has shown us that these stocks often pull back, offering savvy investors a second chance to buy in at a more favorable price.
NOVO is a stock that has moved into cheap territory - giving you a second chance. I base this belief on both technical and fundamental factors.
Oversold
With an RSI hovering just above 30, NOVO is poised for a rebound, especially as we’re approaching the end of the year which normally is the strongest season in the market.
Fundamental valuation
I haven’t seen any reason to revise my fair value estimate (FVE) in the last nine months. Revenue has been pretty bang on. Operating profits have been a few million stronger than what I’ve penciled in at the start of the year but this doesn’t mean all that much. I will revise my DKK870 FVE at the beginning of the next year.
For 2025, I expect a revenue growth of 21%. In recent days, Karsten Munk Knudsen, the Chief Financial Officer of Novo Nordisk, has made headlines with several statements regarding the company's performance and future outlook. During an analyst call following the third-quarter earnings release, Munk Knudsen projected that Novo Nordisk's sales growth for 2025 could reach the high teens in percentage terms. NOVO's stock experienced a decline of about 3-4% following Munk Knudsen's comments about future sales growth being lower than many had anticipated.
NOVO’s CFO might be right about next year's revenue growth but a few percentage points up or down on the topline doesn’t have to mean everything. Profit margins are also important, and in the case of NOVO, with its current high investment levels, future capital expenditures have a strong effect on fair values in the short term. A valuation has to weigh everything.
I'm excited to have a price target that sits comfortably in the middle of the analyst range, reflecting my balanced perspective on the stock's potential.
In my opinion, bears are exaggerating competition in the diabetes and obesity field. No one has been able to knock NOVO off its secular market leadership perch in the diabetes segment. I see no reason that NOVO will lose its 33% market share next decade. NOVO is much more specialized in diabetes, obesity, and its comorbidities than competitors and is a company that is laser-focused on innovation in this space.
We will look into this innovation below. Hopefully, this will lead you to agree with me on NOVO’s wide moat.
So, what do the super bulls get wrong? They may have extrapolated the initial high prices to go on too long. The increased patient subscriptions for Wegovy (NOVO) and Zepbound (LLY) have already impacted their pricing dynamics. NOVO and LLY must stay price-competitive to drive scripts and retain market share. Alas, while it is obvious that the total weight-loss drug market is enormous, we must pair this quantity with realistic price accomplishments and revenue levels going forward. I don’t have a crystal ball but I think new pricing dynamics can explain why the stock has pared back in the last months.
Wide moat rests upon continuous innovation
NOVO’s pipeline features semaglutide oral formulations and combination therapies like CagriSema. Additionally, NOVO has several trial programs focused on alleviating diabetes and obesity comorbidities.
CagriSema is a novel combination therapy integrating semaglutide and cagrilintide. Semaglutide enhances insulin secretion and reduces appetite, while cagrilintide (amylin) potentially helps you feel full after meals. CagriSema is progressing to Phase 3 trials after showing a 15% weight loss reduction after 32 weeks. We’re awaiting weight reduction after a full year to see whether the results significantly surpass other treatments. Preliminary indications suggest this is the case. Designed for once-weekly injection, CagriSema targets type 2 diabetes and obesity.
Oral semaglutide, is part of Novo Nordisk's OASIS clinical trial program, specifically focusing on its efficacy in treating obesity. The OASIS program consists of multiple Phase 3 trials evaluating the safety and efficacy of oral semaglutide in adults with obesity or overweight who have one or more comorbidities. Like CagriSema, NOVO investigates whether an oral treatment also could be extended to Amycretin, targeting both amylin and glucagon-like peptide-1 (GLP-1) receptors. NOVO has also initiated a phase 1 study of oral semaglutide with a once-a-week dosage.
In addition, NOVO has several clinical trials in phase 3, exploring semaglutide effects on several comorbidities. The SOUL program deals with patients on oral semaglutide with established cardiovascular or kidney disease. The primary goal of the FOCUS program is to assess how well semaglutide can help patients achieve significant weight loss and improve metabolic health, particularly in those who also have type 2 diabetes. The STRIDE program is designed to evaluate the efficacy of semaglutide in patients with type 2 diabetes who also have peripheral artery disease.
Conclusion
The bottom line is that NOVO has so much going on in the pipeline that it will be very difficult for smaller players to challenge NOVO’s leadership in the diabetes and obesity field. I stick to my guns. NOVO is cheap here.
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