Novo Nordisk A/S (NVO), based in Bagsvaerd, Denmark, engages in the R&D, manufacturing, and distribution of pharmaceutical products specializing in treating diabetes, obesity, and rare diseases. The company reported solid results for the second quarter of 2024 and raised its full-year guidance. The company reported net sales of DKK133.41 billion ($19.72 billion), indicating increase of 23.9% year-over-year.
Analysts have high expectations for the company, with a projected 31.1% year-over-year growth in third-quarter revenue, forecasted to reach $10.96 billion, while the company’s EPS for the same quarter is expected to climb by 22.3% year-over-year to $0.87. Moreover, NVO has an impressive earnings surprise history, having topped the consensus revenue and EPS estimates in three of the trailing four quarters.
In the present time, with wide food variety and negligible attention towards health, cases of obesity are more than expected. Obesity is a significant concern for a broad population, having the potential to cause more than half of diabetes cases and over 200 other chronic diseases. In this situation, companies developing obesity drugs stand to benefit exponentially.
The global obesity drugs market can potentially grow 15-fold by 2030 with growing demand. As per estimates from analysts at Morningstar and Pitchbook, the obesity treatments market, currently dominated by companies like Novo Nordisk and Eli Lilly, could launch 16 new drugs by 2029. The Obesity Treatment Market is projected to grow at a CAGR of 10.3% until 2032.
With these industry trends, NVO stands to capitalize on the growing market demand and consumer needs. During the second quarter, NVO attained significant milestones and accelerated its ongoing operations. The company's sales from Diabetes and Obesity care increased 26% to DKK125 billion ($18.48 billion), driven by GLP-1 diabetes sales growth and Obesity care growth.
Novo Nordisk completed the phase 3 FRONTIER 2 trial with Mim8, where Mim8 demonstrated superior reduction of treated bleeding episodes compared to on-demand and prior prophylaxis treatment in people with haemophilia A. It has also received a positive CHMP opinion, based on the SELECT trial, regarding an update of the Wegovy® label.
The company raised its sales growth outlook for the full-year 2024 to 22% to 28% from the prior range of 19% to 27%. Its operating profit growth is expected to be between 20% and 28% for the same period.
Shares of NVO have surged 30.1% over the past year to close its last trading session at $129.78.
Let’s look at factors that could influence NVO’s performance in the upcoming months.
Positive Recent Developments
On July 25, NVO announced that the European Medicines Agency's Committee for Medicinal Products for Human Use (CHMP) adopted a positive opinion for an update of the Wegovy® label to reflect data from the SELECT cardiovascular outcomes trial, reflecting a risk reduction of major adverse cardiovascular events.
The SELECT trial demonstrated that Wegovy® significantly reduced the risk of MACE by 20% compared to placebo when added to the standard of care and marked a significant milestone for people living with cardiovascular disease and obesity.
On June 24, NVO announced a $4.1 billion investment to expand US manufacturing capacity by building a second fill and finishing manufacturing facility in Clayton, North Carolina. This will grow the facility's ability to produce current and future injectable treatments for people with obesity and other serious chronic diseases.
Robust Financials
NVO’s net sales increased 23.9% year-over-year to DKK133.41 billion ($19.72 billion) during the six months that ended June 30, 2024. Its gross profit grew 23.6% from the year-ago value to DKK113.22 billion ($16.73 billion). The company’s operating profit (EBIT) of DKK 57.78 billion ($8.54 billion) indicates growth of 18.2% from the prior year’s quarter.
In addition, the company’s net profit and EPS amounted to DKK 45.46 billion ($6.72 billion) and DKK 10.17, up 15.8% and 16.8% year-over-year, respectively. Its EBITDA increased 31.7% from the year-ago value to DKK 69.54 billion ($10.28 billion).
Also, the company’s free cash flow and total assets stood at DKK 41.31 billion ($6.11 billion) and DKK 369.38 billion ($54.60 billion) as of June 30, 2024.
Solid Historical Growth
NVO’s revenue and EBITDA have grown at respective CAGRs of 25.7% and 29.3% over the past three years. The company’s EBIT has increased 29.9% over the same timeframe, while its net income and EPS have improved at CAGRs of 26.6% and 28.1%, respectively.
Furthermore, the company’s total assets and levered free cash flow have grown at CAGRs of 32.7% and 35.2% over the past three years, respectively.
Positive Analyst Estimates
The consensus revenue estimate of $10.96 billion for the third quarter (ending September 2024) reflects a 31.1% year-over-year improvement. The company’s EPS for the same quarter is expected to increase 22.3% year-over-year to $0.87. Also, the company has an impressive earning surprise history, having beaten the consensus revenue and EPS estimates in three of the trailing four quarters.
For the fiscal year ending December 2024, NVO’s revenue and EPS are expected to grow 27.3% and 25.4% year-over-year to $42.87 billion and $3.38, respectively. Additionally, Street expects the company’s revenue and EPS for the fiscal year 2025 to increase 20.3% and 26% year-over-year to $51.57 billion and $4.26, respectively.
High Profitability
NVO’s trailing-12-month gross profit margin and EBIT margin of 84.53% and 45.96% are 47.2% and 1640.2% higher than the respective industry averages of 57.44% and 2.64%. Its trailing-12-month levered FCF margin of 21.12% is significantly higher than the industry average of 1.32%.
Furthermore, the stock’s trailing-12-month CAPEX/Sales of 13.25% favorably compares to the industry average of 3.30%. And its trailing-12-month Asset Turnover Ratio of 0.79x is 92.2% higher than the industry average of 0.41x.
POWR Ratings Reflect Promise
NVO’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to a Buy in our proprietary system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. NVO has an A grade for Quality, consistent with its higher-than-industry profitability.
NVO is ranked #26 in the 160-stock Medical - Pharmaceuticals industry.
Beyond what is stated above, we have also given NVO ratings for Sentiment, Value, Momentum, Growth, and Stability. Get access to all the NVO Ratings here.
Bottom Line
NVO is a leading pharmaceutical company operating across multiple nations, providing solutions in Diabetes and Obesity Care and Rare Disease segments. The company's recent medicinal breakthrough and manufacturing expansion have furthered its capacity to cater to the global market.
Given NVO’s robust financial performance, accelerating profitability, favorable analyst expectations, and promising growth outlook, this medical stock could be an ideal buy for growth opportunities.
How Does Nordisk A/S (NVO) Stack Up Against Its Peers?
While NVO has an overall POWR Rating of B, investors could also check out these other stocks within the Medical - Pharmaceuticals industry with A (Strong Buy) or B (Buy) ratings: GSK PLC ADR (GSK), AbbVie Inc. (ABBV), and Merck & Co. Inc. (MRK).
For exploring more A and B-rated medical stocks, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
NVO shares rose $0.23 (+0.17%) in after-hours trading Thursday. Year-to-date, NVO has gained 33.13%, versus a 18.37% rise in the benchmark S&P 500 index during the same period.
About the Author: Rjkumari Saxena
Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions.
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