5
Novo Nordisk A/S (NVO)
- Equity
- Denmark
- Healthcare
RISK
RETURN
Key risk factors
Low default risk
Low price volatility
Resilient to price shocks
Key return factors
Very strong margins and returns
Greatly overvalued vs peers
Good growth
Company profileNovo Nordisk A/S, a healthcare company, engages in the research, development, manufacture, and marketing of pharmaceutical products worldwide. It operates in two segments, Diabetes and Obesity care, and Biopharm. The Diabetes and Obesity care segment provides products in the areas of insulins, GLP-1 and related delivery systems, oral antidiabetic products, obesity, and other chronic diseases. The Biopharmaceuticals segment offers products in the areas of haemophilia, growth disorders, and hormone replacement therapy. The company collaboration agreements with Gilead Sciences, Inc. Novo Nordisk A/S also has a research collaboration with Lumen Bioscience, Inc. to explore strategies for delivering oral biologics for cardiometabolic disease. The company was founded in 1923 and is headquartered in Bagsvaerd, Denmark.
Valuation: Greatly overvalued
Multiple
TTM
NTM
P/E
46.40
39.60
PEG
2.60
-
P/B
41.90
20.30
P/S
16.90
14.30
P/FCF
82.20
68.70
EV/EBITDA
33.70
30.20
Considering past and projected metrics, the stock is distinctly 'expensive' compared to its peers. In particular, the stock is overpriced on P/E, 'expensive' on EV/EBITDA, and overvalued on P/FCF.
Performance: Decent
Over the past six months, the stock has consistently climbed, resulting in 29% total increase. When compared to its international counterparts in the same sector and industry (as shown above), the stock has exceeded their performances, leading by 23ppts in total. This is equally valid for peers from the same country and industry. Given the stock's valuation versus its peers, its total price movement is mildly favourable.
Analyst view: Neutral
The average target price is 145 and suggests 7% upside potential. Usually, this means a HOLD recommendation among investment firms. This neutral recommendation suggests no significant price movement, up or down, in the next 12 months. The most optimistic analyst has a target price of 163.4. This translates into 20% upside potential in the best case. On the other hand, the most pessimistic analyst has a target price of 130.4. This is equivalent to 4% downside potential in the worst case.
Profitability: Very strong
RoE
Novo Nordisk A/S reported a return on equity (RoE) of 86.9% in the last 12 months, down from 88.1% in FY23. The market consensus projects an RoE of 70.3% in FY24, again ahead of its peers.
RoA
Another important profitability metric, return on assets (RoA), amounted to 29.1% in the last 12 months, a decrease from 30.1% in FY23. The market analysts predict that RoA will be 21.7% in FY24, again stronger than its peers.
RoCE
In the last 12 months, the return on capital employed (RoCE) grew to 64.2%, above the peers. The consensus estimate for FY24 for RoCE is 60.1%, again ahead of the peers.
Net margin
EBITDA margin
Historically, NOVO-B.CO has reported very strong net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 36.6%, a growth from 36.0% in FY23. The company has reported very strong EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 50.5% in the last 12 months, up from 49.8% in FY23.
RoIC / WACC = 14.8(excellent value creation)
The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 14.8 in the past several years. This ratio implies a excellent shareholder value creation. Growth: Good
Revenue
EBITDA
EPS
Free cash flow
NOVO-B.CO reported revenue of DKK 244 243mn in the last 12 months, up 5% from FY23. At the same time, the dynamics of cash flow, as measured by free cash flow (FCF), were drastically different. EPS fell 11% from FY23 to DKK 24.29. Market expects EPS to reach DKK 23.22788 in FY24.Revenue growth has been moderate in the past several years (positive-to-neutral), while EBITDA has grown rapidly in recent years (positive). This all contributed to continued EPS growth (positive-to-neutral). At the same time, free cash flow has been growing poorly in recent years. We emphasize the highly volatile dynamics of FCF and EPS.
Dividends: Reasonable
Dividend paid
Dividend yield
The company has a track record of regular dividend payments. It has paid dividends in each of the past ten years. Dividend per share (DPS) has grown yearly, and there is an evident trend. In the past 12 months, the dividend yield has barely been above zero and was substantially below that of its peers. On average, the company pays dividends twice a year.
Default risk: Low
The risk of default is low. We note strong positions in its industry, robust profitability, solid return on capital, strong debt servicing capacity, adequate interest coverage, solid cash flow generation, and an favourable capital structure, among the positive credit factors. Among the negative credit factors and we point to excessive margin volatility, and poor working capital management.
Volatility: Low
In normal market circumstances, NVO is not overly volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will stay within a narrow range. The stock's losses on its worst days (less than 1-5% of the time) will range from very low to negligible. Finally, it may be affected by inherently volatile sector.
Stress-test: Resilient
In highly turbulent market conditions, NVO is not overly volatile. In other words, the stock will fall far less than the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be very low. At the same time, due to inherently volatile sector, its maximum losses could be low.
Selling difficulty: Small
NVO has above average trading liquidity. The average private investor can sell his common position in the stock immediately. Liquidity is usually quite stable and becomes extremely unfavourable on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions.
Country risk: Very low
The institutional, legal, and compliance risks associated with the company's country are minimal. In combination with stringent business standards, shareholder rights are very highly protected.
Other risks: Negligible
No other major risks have been identified.