Based in Bagsvaerd, Denmark, Novo Nordisk A/S (NVO) specializes in treating diabetes, obesity, and rare diseases. The pharmaceutical giant is expected to unveil its second-quarter earnings report on August 7, 2024. The company has consistently delivered strong financial performance, buoyed by robust sales of its weight-loss and diabetes drugs.

Wall Street expects NVO to report an EPS of $0.77 for the quarter (ended June 2024), indicating a 21.8% year-over-year improvement. Its revenue for the same period is expected to increase 24.3% year-over-year to $9.94 billion. In addition, NVO surpassed the consensus revenue and EPS estimates in three of the trailing four quarters, which is quite impressive.

NVO’s first-quarter revenue was $9.40 billion, compared to the $9.15 billion estimated by analysts. Sales within Diabetes and Obesity care increased by 25% year-over-year DKK60.96 billion ($8.84 billion), mainly driven by GLP-1 diabetes sales growth of 30% and Obesity care growth by 41% to DKK11 billion ($1.59 billion). Furthermore, the company reported an EPS of $0.82, higher than analysts’ expectations of $0.77.

During the quarter, the company has achieved not only regulatory milestones with approvals like Wegovy for cardiovascular risk reduction in the U.S. but also reported positive outcomes from its FLOW kidney outcomes trial with semaglutide 1.0 mg. These successes underscore NVO’s commitment to advancing patient care and expanding its market reach.

Lars Fruergaard Jørgensen, President and CEO of NVO, expressed confidence in their growth strategy, stating, “ More patients benefit from our innovative treatments, and the agreement to acquire the three Catalent manufacturing sites will enable us to serve significantly more people living with diabetes and obesity in the future. Within R&D, we are pleased with the positive results from the kidney outcomes trial with semaglutide and the label expansion for cardiovascular risk reduction for Wegovy® in the US.”

Shares of NVO have gained 52.4% over the past nine months and 78.9% over the past year, closing the last trading session at $140.43. Also, the stock has surged 35.8% year-to-date.

Here are the financial aspects of NVO that could influence its price performance in the near term:

Strategic Investments and Clinical Advancements

On June 24, NVO announced a $4.1 billion investment to construct a second fill-and-finish manufacturing facility in Clayton, North Carolina, enhancing its capacity to produce injectable treatments for obesity and other chronic diseases.

This significant expansion, one of the largest in the company’s history, will add 1.4 million square feet of production space, doubling the size of Novo Nordisk's facilities in the state. In 2024, the company plans to increase its production investment to $6.8 billion, up from $3.9 billion the previous year.

A day later, the company revealed positive phase 3 results from the FRONTIER2 trial for Mim8, an investigational drug for haemophilia A. The trial involved 254 participants and showed that up to 95% of those without prior prophylaxis treatment experienced zero treated bleeds. The data presented at ISTH 2024 demonstrated Mim8's superiority over on-demand treatment and previous clotting factor prophylaxis in reducing bleeding episodes.

In March, NVO announced the acquisition of Cardior Pharmaceuticals for up to €1.025 billion ($1.11 billion), including upfront and milestone payments. This acquisition includes Cardior's lead compound, CDR132L, which is in phase 2 clinical development for heart failure. This move strengthens the company’s pipeline in cardiovascular disease, aligning with its strategy to address significant unmet needs in this leading cause of global mortality through internal and external innovation.

Solid Financials

For the first quarter that ended March 31, 2024, NVO’s net sales increased 22.4% year-over-year to DKK65.35 billion ($9.48 billion). Its gross profit stood at DKK55.43 billion ($8.04 billion), up 22.7% year-over-year, with a gross margin of 84.8%.

The company’s operating profit (EBIT) rose 27.3% from the year-ago value to DKK31.85 billion ($4.62 billion), while its net profit grew 26.4% from the previous year’s quarter to DKK 25.41 billion ($3.68 billion).

Additionally, NVO’s EPS rose 29.4% year-over-year to DKK5.68. Also, its EBITDA for the quarter came in at DKK34.76 billion ($5.04 billion), up 30.1% from the prior year’s period. As of March 31, 2024, the company had DKK6.32 billion ($917.19 million) in its cash and cash equivalents.

Impressive Historical Growth

Over the past three years, NVO’s revenue has grown at a CAGR of 24.4%. Its EBITDA has improved at a 26.9% CAGR over the same period. The company’s net income and EPS have grown at CAGRs of 27.7% and 29.4% over the same timeframe, respectively.

Furthermore, the company’s total assets have increased at a CAGR of 28.4% over the past three years, and its levered free cash flow has grown at a CAGR of 24.5%.

Rosy Annual Forecasts

The consensus revenue estimate for the current year ending December 2024 stands at $42.29 billion, signaling a 25.6% year-over-year increase. Likewise, the company’s EPS is anticipated to witness a 27.6% uptick from the previous year, reaching $3.45.

Looking ahead, analysts anticipate a 20.9% increase in revenue for the fiscal year 2025, with projections reaching $51.12 billion. Similarly, EPS for the next year is expected to grow 24.7% from the prior year, settling at $4.30.

Robust Profitability

NVO’s trailing-12-month gross profit margin of 84.65% is 47.1% higher than the industry average of 57.53%. Similarly, its 0.89x trailing-12-month asset turnover ratio exceeds the 0.40x industry by 119.8%, while its trailing-12-month EBITDA margin of 48.25% compares to industry average of 5.76%.

Also, its 16.48% trailing-12-month levered FCF margin is significantly above the industry average of 1.30%. Furthermore, the stock’s trailing-12-month ROCE and ROTC of 99.87% and 59.91% compare to their respective industry averages of negative 39.01% and negative 19.39%.

POWR Ratings Exhibit Solid Prospects

NVO’s robust fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. NVO has a B grade for Stability, consistent with its five-year beta of 0.15. Also, its higher-than-industry profit margins justify its B grade for Quality.

Within the Medical - Pharmaceuticals industry, NVO is ranked #9 out of the 155 stocks.

Beyond what we’ve stated above, we have also rated the stock for Growth, Value, Momentum, and Sentiment. Get all NVO ratings here.

Bottom Line

NVO's strategic emphasis on chronic diseases like obesity and diabetes sets it apart from pharmaceutical giants focused on COVID-19 vaccines. This strategy ensures sustained relevance, as obesity drugs are projected to see a 15-fold market increase by 2030, reaching $105 billion.

Recent clinical trial successes and investments in production capacity have further bolstered its capacity to meet the rising global demand for obesity treatments. Moreover, with recent strategic acquisitions, the company is poised to solidify its position as a pharmaceutical powerhouse.

As Novo gears up to report its second-quarter earnings next month, all indicators suggest that the company is poised to capitalize on its strong market position and innovative pipeline. Hence, scooping up the shares of this A-rated stock could bring significant growth opportunities for your portfolio.

How Does Novo Nordisk A/S (NVO) Stack Up Against Its Peers?

While NVO has an overall grade of A, equating to a Strong Buy rating, you may also check out these other stocks within the Medical - Pharmaceuticals industry: Merck & Co., Inc. (MRK), Novartis AG (NVS), and AstraZeneca PLC (AZN), carrying A (Strong Buy) ratings. To explore more medical pharmaceutical stocks, click here. 

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NVO shares were trading at $140.36 per share on Wednesday morning, down $0.07 (-0.05%). Year-to-date, NVO has gained 36.38%, versus a 17.92% rise in the benchmark S&P 500 index during the same period.

Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.

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