Will Novo Nordisk Stock Go Up?

Novo Nordisk’s (NVO) shares have soared to unprecedented highs amid positive sentiments around its diabetes and obesity drugs but can the bullish momentum be sustained?

Novo Nordisk A/S’ (NYSE:NVO) market value has grown substantially over the past years mainly because of its solid pipeline of products that have gained significant prominence, particularly in the areas of diabetes and obesity.

The company is leading the way in the diabetes and weight management market on the back of a 100-year legacy and its top-selling products, Ozempic for type 2 diabetes and Wegovy for controlling obesity, are doing much better than similar competitor products.

Novo Nordisk stock has been on fire, climbing by nearly 400% in the past five years to command a market capitalization of $556 billion.

While it’s no wonder that the stock is trading close to all-time highs, reached earlier this year after the positive trial data of the new weight management drug was released, more gains may very well be on the horizon thanks to new growth drivers in the offing.

Management has been consistently bolstering its portfolio of not only diabetes and obesity drugs but also rare disease and cardiovascular solutions.

Prominent acquisitions and ongoing development that are contingent potential regulatory approvals and commercialization, should only serve to further boost its market standing.

40 Million Reasons Why Novo Nordisk Is Soaring

Novo Nordisk’s primary revenue stream comes from its diabetes and obesity offerings.

People are now becoming increasingly vulnerable to diabetes, which in turn increases the addressable market size for Novo Nordisk.

While the total number of adults suffering from diabetes is 537 million today, Novo Nordisk reached 40.5 million last year despite supply issues.

The company’s reach has increased from 30 million in 2019, resulting in more than a 10 million person increase in just four years.

The company’s market share in diabetes care rose to 33.8% in 2023, with the strong demand for GLP-1-based Ozempic, which is the leading diabetes medicine worldwide.

There is no doubt that Novo Nordisk has caused a transformational shift in the diabetes care market. And further bullish tailwinds are likely from its oral therapy, Rybelsus, which is gaining traction by relieving patients of injections.

54.8% Share of Market Is Evidence Of Dominance

Novo Nordisk will likely keep ruling the GLP-1 market. In 2023, it had a 54.8% share, and the company already met its goal of getting at least one-third of this market, showing steady growth potential.

Also, when insulin sales dropped in some key markets, Novo Nordisk’s market share impressively stayed almost the same at 43.9%.

On the other hand, obesity has already shown signs of becoming an epidemic with increasing vulnerability and mortality. People with obesity have almost tripled since 1975, as per Novo Nordisk’s study, and forecasts are expected to be more than 1.2 billion adults by the end of this decade.

The growing incidence of obesity leading to a rise in demand for weight management solutions has garnered significant hype around Wegovy, Novo Nordisk’s obesity-controlling treatment.

The United States was the first market for the product to launch, and the company is rapidly expanding its reach. Earlier this year, Novo Nordisk announced positive clinical Phase 1 trial results for a new obesity pill, Amycretin.

NVO Is Targeting Other Large Markets Too

Novo Nordisk’s prowess is not limited to just these two domains. It is expanding to address rare blood and endocrine conditions. Though this segment is going through a slowdown, management is confident in its ability to gain traction.

As it attempts to grow, Novo Nordisk is increasingly acquisitive. For example, it recently announced plans to acquire Cardior Pharmaceuticals.

Management is looking to expand the firm’s cardiovascular capabilities, and this acquisition will give it access to Cardior’s experimental heart failure treatment, CDR132L, which is currently undergoing phase two trials.

Furthermore, Novo Nordisk is expanding production to meet the growing demand via some of the most advanced manufacturing plants in the industry. 

When you add manufacturing capability to new pipeline drugs and markets, as well as an established market dominance position, the prospects look really good for Novo Nordisk for the foreseeable future.

Financials Are Stellar

The company’s net sales for FY2023 improved by 31% to DKK232.26 billion ($33.75 billion). Obesity care sales, which increased by 174% were the primary contributing factor to this growth. Sales for Diabetes care sales rose by 24% but declined 16% for rare disease products.

Operating profit increased by 37% to DKK102.57 billion ($14.90 billion). Management also reported spectacular gross margin of 84.6% versus 83.9% recorded in 2022.

Maintaining a gross margin above 80% reflects the firm’s financial strength and ability to command premium pricing.

The company realized a free cash flow of DKK68.3 billion ($9.92 billion) compared with DKK57.4 billion ($8.34 billion) in the prior year.

Novo Nordisk remained strong on the bottom line with more than 50% year-over-year growth reported on EPS of DKK18.62. The company’s financial strength builds a solid investment case.

Management outlook for the ongoing year suggests an 18% to 26% sales growth, primarily to boosted by robust global sales of GLP-1-based treatments, while operating profit is expected to grow between 21% and 29%.

Is Novo Nordisk Dividend Safe?

Investors have more reason to rejoice as the company pays dividends twice a year and those dividend payouts have grown at a 23.8% CAGR over the past three years and 17.2% over the past five years.

An income investor may not find its 1.46% dividend yield overly attractive, but it’s a steady addition to the total returns.

The company’s ability to generate steady cash flow and a reasonable payout ratio of 51.4% suggests that it can maintain the payments without interruption long into the future.

Will Novo Nordisk Stock Go Up?

Both the portfolio and financial strength of Novo Nordisk position it uniquely to benefit from the growing chronic diseases market.

The company’s obesity-focused drug, Wegovy, was a major growth driver last year and is expected to contribute substantially going forward.

The positive investor sentiments from upbeat clinical trial results and solid demand across its diabetes and obesity management products have pushed the stock to a premium valuation.

Priced at 37.78x non-GAAP forward earnings, it looks expensive compared to industry peers. However, the company is positioned to grow its bottom line steadily, which should help it continue to gain in value.

The majority of Wall Street analysts, 5 of 8, are bullish on the company’s prospects and recommend it as a Buy. Only 2 Hold recommendations exist.

When it comes to the stock’s upside potential, the average price doesn’t of $133.05 per share doesn’t look impressive. And yet, while the upside potential isn’t thrilling, Novo Nordisk is likely to be a stable long-term investment for the foreseeable future.

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