Novo Nordisk In-depth analysis Novo 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 Rare Disease. The Diabetes and Obesity care segment provides products in the areas of insulins, GLP-1 and related delivery systems, oral antidiabetic products, obesity, glucagon, needles, and other chronic diseases. The Rare Disease segment offers products in the areas of haemophilia, blood disorders, endocrine disorders, growth disorders, and hormone replacement therapy. The company has a collaboration agreement with Gilead Sciences, Inc.; and research collaboration with Novo Nordisk to discover cell-specific carriers of nucleic acid therapeutics. The company was founded in 1923 and is headquartered in Bagsvaerd, Denmark.
Macroeconomics
Fundamental analysis suggests that the US may enter into recession in the near future. Interest rates are currently around 5% and are not expected to fall. US yields are rising, which does not suggest that they will pivot soon.
If the US goes into recession, other countries are likely to follow and go into recession as well. This is why it is important to monitor how the NVO performs in a recession.
Recession is hitting NVO, but the company is more stable than SP500.
Valuation method - Sector analysis
The health care sector did not impress last year, but over 5 years it returned 41%, which is an average of 8.2% per year. It is also underperformed against SP500.
The large cap sector is doing very well, but low beta is quite disappointing.
Valuation Method - relative
The company is not the outlier, but it has outperformed most of its peers. PE and other ratios are high, which means the company is overvalued but the market is willing to pay the premium for this stock.
Valuation Method - absolute
Diabetes is one of the most common causes of death in the world and shortens a human life by an average of 8 years! Anyone with the disease needs immediate treatment.
Currently, over 50% of sales of diabetes drugs are generated in the USA, as the American healthcare system is enormously lucrative for producers. The market is growing constantly, and due to increasing affluence and the accompanying poor diet, this will not change in the future. Another trend is not coming from consumers, but from the companies themselves: There are fewer and fewer companies doing research on diabetes. Research is not easy. There are not many big competitors, but new products are regularly coming onto the market that work even better and for longer. So the competition is gradually being squeezed out of the market. The established companies such as Novo Nordisk or Boehringer Ingelheim benefit enormously from this and can further expand their position in the market.
Business
The business appears to be stable and very profitable. Together with Elly Lilly, NVO has contracts with the US government for its diabetes products. They recently announced a new innovative product - the diabetes pencil, which is already approved in many countries.
The company has many production facilities in different countries reducing the foreign exchange risk, which in current situation with high interest rates is very important.
R&D pipeline
The scientists are currently working on novel and innovative treatments to address the unmet needs of people living with diabetes, obesity, cardiovascular disease, haemophilia, growth disorders and non-alcoholic steatohepatitis (NASH).
The R&D pipeline is pretty big and from the financial statement we see that every year they expand the pipeline.
Countries with R&D facilities - 5
"Novo Nordisk to invest $2.3bn to expand Danish manufacturing facilities"
Employment
Leaders have been with the company for a long time, have proven their leadership skills.
There are various social programmes to please the employers. Employment is rising year on year.
Performance
It is very clear from the annual accounts that NVO is doing quite well - sales, turnover and profits are growing. Debt is coming down. They have a diversified asset portfolio that avoids market risk.
Dividends
Dividends are not so high, but they are increasing every year, which gives us some sense of stability. The payout and coverage ratios are also very good.
Ownership
There is no lack of institutions investing in this company - Renaissance Technologies, Bank of America Corporation, Morgan Stanley, Blackrock Inc. and others.
There are also several mutual fund holders.
Consensus rating is "buy", made by several analysts.
Technical analysis
The market structure is currently bullish. Price is moving in a bullish channel and until this channel holds, NVO should remain "Buy".
At the moment, the price is bouncing off the upper band of the channel and appears to be overbought. There is also an imbalance to be closed from the previous impulse move.
RSI is suggesting a bullish structure.
Valuation method - fair price
The fair value models suggest that the company is currently overvalued. According to the VaR, the price could fall to USD 70-80, which is in line with the lower band of the channel and the moving averages.
I would say that 70 usd is the fair value for that company, considering all the valuation metrics.
Summery
Although the stock is overvalued, it seems to have a lot of potential to go up in the future. The business model is very good and stable, and is backed up by the company's accounts.
At the moment, all stocks are falling due to the current economic situation, so when the NVO reach the reaction area, we should watch how it will react.
