Every investor is on a quest to find a stock that can create immense wealth. Wealth creation happens when an investor capitalizes on trends early on. Danish pharma major Novo Nordisk A/S (NVO) reported a solid end to fiscal 2022, with its sales rising 26% in the Danish kroner (Kr.) and by 16% at constant exchange rates (CER). Its operating profit rose 28% in the Danish kroner and 15% at CER.
The company’s sales in North America Operations increased by 35% in Danish kroner (21% at CER), while its sales in International Operations rose by 17% in Kr. (13% at CER). Sales within Diabetes and Obesity Care increased 29% in Kr (19% at CER) to Kr.156.41 billion ($22.58 billion), driven by GLP-1 diabetes sales growth of 56% in Danish kroner (42% at CER).
Obesity care sales rose 101% in the Danish kroner (84% at CER), and rare disease sales increased by 7% in Danish Kroner (1% at CER). NVO’s President and CEO, Lars Fruergaard Jørgensen, said, “We are very pleased with the double-digit sales growth in 2022 driven by our innovative GLP-1-based diabetes and obesity treatments, and more than 36 million people living with diabetes are now benefiting from our treatments.”
“We continued to make progress on our strategic aspirations, and in 2023, we will continue our focus on strong commercial execution, expanding and progressing our innovative pipeline and investing significantly in the expansion of production capacity for current and future portfolio,” he added.
NVO’s blockbuster weight loss drug Wegovy, which received FDA approval in 2021, was short in supply throughout 2022. The U.S. Wegovy sales in the fourth quarter skyrocketed 213% year-over-year to Kr. 2.45 billion ($353.75 million). The company’s CEO Lars Fruergaard Jørgensen admitted that they had underestimated the huge demand for the drug. Moreover, its contract manufacturer had to halt operations to address inspection issues. Jørgensen said, “We should have forecasted better, which we did not.”
However, the company is now ramping up the production of Wegovy to address the substantial pent-up demand in the U.S. Moreover, NVO is set to roll out its obesity treatment Wegovy (semaglutide) in Europe this year after delaying its launch last year to have enough supply post-launch. Wegovy could be a game-changer for the company. Morgan Stanley expects global sales of obesity drugs to reach more than $50 billion by 2030.
NVO expects its global sales for its obesity drug portfolio, which includes saxenda, to exceed Kr.25 billion ($3.61 billion) by 2025. Although the drug faces competition from Eli Lilly’s obesity treatment, Mounjaro, Third Bridge’s Sebastian Skeet believes that the market is so large and underpenetrated that there is enough room for two competitors.
For fiscal 2023, the company expects its sales and operating profit growth to be 13% to 19% at constant exchange rates (CER). Sales and operating profit growth in the Danish kroner are expected to be 4 and 5 percentage points lower than at CER, respectively. NVO’s capital expenditure in 2023 is expected to be around Kr.25 billion. Its free cash flow is expected to come between Kr. 60 billion to 68 billion.
At its annual general meeting on March 23, 2023, the board of directors will propose a final dividend of Kr.8.15 per share for 2022 per share. This means that the total dividend for 2022 would add up to Kr.12.40 after an interim dividend of Kr.4.25 per share was paid on August 2022. In addition, the board of directors has decided to initiate a share repurchase program of up to Kr.28 billion.
NVO’s annual dividend of $2.38 yields 1.70% on the current share price. It has a four-year average yield of 1.83%. Its dividend payouts have increased at a 9.3% CAGR over the past three years and a 6.9% CAGR over the past five years.
NVO’s stock has gained 33.4% in price over the past six months and 31.7% over the past year to close the last trading session at $139.53. Wall Street analysts expect the stock to hit $150.19 in the near term, indicating a potential upside of 7.6%.
Here’s what could influence NVO’s performance in the upcoming months:
Robust Financials
NVO’s net sales increased 25.5% year-over-year to Kr.48.09 billion ($6.94 billion) for the fourth quarter ended December 31, 2022. Its operating profit rose 25.3% from the prior-year period to Kr.17.09 billion ($2.47 billion). The company’s net profit increased 24.8% year-over-year to Kr.13.59 billion ($1.96 billion). In addition, its EPS came in at Kr.6.02, representing an increase of 26.5% year-over-year.
For the fiscal year ended December 31, 2022, NVO’s net sales increased 25.7% year-over-year to Kr.176.95 billion ($25.54 billion). The company’s gross profit rose 26.8% from the prior-year period to Kr.148.51 billion ($21.44 billion). Its operating profit increased 27.6% year-over-year to Kr.74.81 billion ($10.80 billion).
Also, NVO’s net profit rose 16.3% year-over-year to Kr.55.53 billion ($8 billion). Its EPS came in at Kr.24.44, representing an increase of 17.8% year-over-year. In addition, its net cash generated from operating activities rose Kr.43.4% from the prior-year period to Kr.78.89 billion ($11.39 billion).
Favorable Analyst Estimates
Analysts expect NVO’s EPS for fiscal 2023 and 2024 to increase 35% and 4.2% year-over-year to $4.87 and $5.08. Its revenue for fiscal 2023 and 2024 is expected to increase 12.1% and 11.7% year-over-year to $29.29 billion and $32.71 billion.
Solid Growth
NVO’s revenue grew at a CAGR of 13.2% over the past three years. Its EBIT grew at a CAGR of 13% over the past three years. In addition, its EPS grew at a CAGR of 14.3% in the same time frame.
High Profitability
NVO’s trailing-12-month net income margin is 31.38% compared to the negative 5.84% industry average. Likewise, its trailing-12-month EBIT margin is 42.73%, compared to the negative 1.05% industry average.
Furthermore, the stock’s trailing-12-month levered FCF margin is 32.49% compared to the negative 2.39% industry average. Its 0.81x trailing-12-month asset turnover ratio is 141.1% higher than the 0.34x industry average.
POWR Ratings Show Promise
NVO has an overall rating of A, which equates to a Strong Buy in our POWR Ratings system. The POWR Ratings are calculated by taking into account 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 high profitability.
It has a B grade for Stability, in sync with its 0.33 beta. In addition, favorable analyst estimates justify its B grade for Sentiment.
NVO is ranked first out of 172 stocks in the Medical - Pharmaceuticals industry. Click here to access NVO’s Growth, Value, and Momentum ratings.
Bottom Line
NVO is trading above its 50-day and 200-day moving averages of $134.02 and $114.81, respectively, indicating an uptrend. Despite the supply crunch of its blockbuster obesity drug Wegovy, the company reported solid growth in revenue and earnings in fiscal 2022. With the drug’s rollout in Europe coinciding with the easing of supply issues this year, the company is expected to benefit immensely from its strong demand.
Given its robust financials, strong growth, solid dividend payouts, favorable analyst estimates, and high profitability, it could be wise to buy the stock now.
How Does Novo Nordisk A/S (NVO) Stack up Against Its Peers?
NVO has an overall POWR Rating of A, equating to a Strong Buy rating. Check out these other stocks within the Medical - Pharmaceuticals industry with an A (Strong Buy) rating: Novartis AG (NVS), Bristol-Myers Squibb Company (BMY), and Astellas Pharma Inc. (ALPMY).
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NVO shares were trading at $138.84 per share on Friday morning, down $0.69 (-0.49%). Year-to-date, NVO has gained 2.59%, versus a 6.54% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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