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Here's How to Play Novo Nordisk (NVO) After Q2 Earnings Miss
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Novo Nordisk (NVO - Free Report) reported lower-than-expected second-quarter 2024 results. The company’s earnings of 65 cents per American Depositary Receipt missed the Zacks Consensus Estimate of 71 cents. The miss can be attributed to significantly higher operational costs during the quarter.
Revenues of $9.82 billion, despite a year-over-year increase, missed the Zacks Consensus Estimate of $9.91 billion.
Novo Nordisk expects its sales to grow in 2024. However, the company has lowered its guidance for operating profit growth for the year.
Nevertheless, a single quarter’s results are not so important for long-term investors, and the focus should, rather, be on the company’s strong fundamentals. Let’s understand the company’s strengths and weaknesses to better analyze how to play the stock in the post-earnings scenario.
Novo Nordisk, a leader in the worldwide diabetes and obesity care market, has been witnessing stellar performance of its GLP-1 agonist, semaglutide, which is approved as an Ozempic pre-filled pen and Rybelsus oral tablet for type II diabetes (T2D) and as Wegovy injection for weight management. Semaglutide has been the key driver of Novo Nordisk’s stupendous growth in the past few years.
Let’s dig deeper.
Semaglutide - NVO’s Growth Engine
The GLP-1 segment is an important class of drugs for multiple cardiometabolic diseases and is gaining significant popularity. Novo Nordisk continues to be the global market leader in the GLP-1 segment with around 54% value market share, primarily on the back of its semaglutide medicines.
Wegovy has become the key top-line contributor for Novo Nordisk. Despite supply challenges, Wegovy is seeing strong prescription trends and is generating impressive revenues and profits. The company is investing heavily to ramp up its production capacity to meet the growing demand. Ozempic sales are also contributing to the top line.
Wegovy’s label was expanded to reduce the risk of serious heart problems in obese/overweight adults, which has been boosting its sales. It is also expected to improve insurance coverage for Wegovy, making it more accessible and affordable to patients. A regulatory filing for the drug for the same indication is also under review in the EU.
However, Novo Nordisk faces serious competition from Eli Lilly (LLY - Free Report) in this market space. Lilly has seen unparalleled success with tirzepatide, a dual GIP and GLP-1 receptor agonist, which is marketed as Mounjaro for T2D and Zepbound for obesity. However, NVO is investing heavily in increasing Wegovy supply, both in the United States as well as in international markets, to meet demand.
Pfizer (PFE - Free Report) is developing its GLP-1 candidate, a once-daily formulation of danuglipron, for obesity.
Amgen (AMGN - Free Report) also has a GLP-1 receptor candidate, MariTide (maridebart cafraglutide), for obesity in its pipeline, currently undergoing mid-stage development.
Novo Nordisk is also studying semaglutide for additional indications.
Novo Nordisk is evaluating Wegovy’s efficacy in phase III studies for the treatment of heart failure with preserved ejection fraction in diabetes and obesity patients.
Novo Nordisk is also looking to expand Ozempic’s indication to treat T2D and chronic kidney disease as an adjunctive therapy. Additionally, the company is also conducting a phase III study evaluating semaglutide for nonalcoholic steatohepatitis.
Such efforts to expand the indication of semaglutide are encouraging, as they will increase the eligible patient population of the drug, subject to approval.
The company is also working on diversifying its portfolio beyond diabetes and obesity care to develop new treatments in other areas. Novo Nordisk is making serious strides in the development of Mim8 as a treatment for hemophilia A patients. Based on encouraging phase II data, NVO plans the first regulatory filing for Mim8 by 2024-end.
Last month, an Oxford study demonstrated that treatment with Novo Nordisk’s semaglutide was associated with benefits like lowering the risk of cognitive problems and nicotine misuse. This opens the scope for further evaluation of the drug to potentially treat several brain ailments.
Rising Sales and Margins
Novo Nordisk, with a market cap of around $600 billion, has one of the broadest diabetes portfolios in the industry.The company improved its global diabetes value market share in 2023 from 31.9% to 33.8%, primarily due to market share gains in both North America and International operations.In 2023, Novo Nordisk’s GLP-1 sales in diabetes jumped 52%.
In the past five years, total revenues generated by the company surged 90.3% on a reported basis.In 2023, the company reported a net profit margin of 36%, which is the highest recorded in the past five years. During the same period, NVO’s net profit margin remained above 31%, showing consistency.
We believe the stock has the potential to rise further with consistently strong sales of Ozempic and Wegovy.
Valuation and Price
Novo Nordisk has rallied 25.6% in the year-to-date period compared with the industry’s 21% growth, as seen in the chart below. The stock has also outperformed the sector and the S&P 500.
Image Source: Zacks Investment Research
Novo Nordisk is trading at a discount to the industry. Going by the price/earnings ratio, the company’s shares currently trade at 13.93 forward earnings, lower than 17.59 for the industry. This suggests that the stock is currently undervalued in the market, and the opportunity should be utilized by new investors to make an entry.
Image Source: Zacks Investment Research
Conclusion
In the past five years, shares of Novo Nordisk have skyrocketed more than 400%. Growing market share and profit margins suggest that the company has the potential for further growth in the years to come, primarily driven by increased sales of Wegovy and Ozempic. The updated sales outlook for 2024 indicates higher full-year expectations for both North America and International operating units.
Furthermore, the company is looking to expand the indications for Wegovy and Ozempic to increase patient eligibility. Subject to approval for such indications, revenues generated from their sales will further boost the top line. The company is also developing multiple other novel obesity candidates to get the edge over its arch-rival, Lilly. The U.S. obesity market has tremendous potential in the years ahead.
Thus, we can conclude that the earnings miss in the second quarter should not bother investors. In fact, NVO’s discounted valuation makes the current stock price a lucrative entry point for potential new investors as well as provides an opportunity for those who are already invested to increase their holdings.
Image: Shutterstock
Here's How to Play Novo Nordisk (NVO) After Q2 Earnings Miss
Novo Nordisk (NVO - Free Report) reported lower-than-expected second-quarter 2024 results. The company’s earnings of 65 cents per American Depositary Receipt missed the Zacks Consensus Estimate of 71 cents. The miss can be attributed to significantly higher operational costs during the quarter.
Revenues of $9.82 billion, despite a year-over-year increase, missed the Zacks Consensus Estimate of $9.91 billion.
Novo Nordisk expects its sales to grow in 2024. However, the company has lowered its guidance for operating profit growth for the year.
Nevertheless, a single quarter’s results are not so important for long-term investors, and the focus should, rather, be on the company’s strong fundamentals. Let’s understand the company’s strengths and weaknesses to better analyze how to play the stock in the post-earnings scenario.
Novo Nordisk, a leader in the worldwide diabetes and obesity care market, has been witnessing stellar performance of its GLP-1 agonist, semaglutide, which is approved as an Ozempic pre-filled pen and Rybelsus oral tablet for type II diabetes (T2D) and as Wegovy injection for weight management. Semaglutide has been the key driver of Novo Nordisk’s stupendous growth in the past few years.
Let’s dig deeper.
Semaglutide - NVO’s Growth Engine
The GLP-1 segment is an important class of drugs for multiple cardiometabolic diseases and is gaining significant popularity. Novo Nordisk continues to be the global market leader in the GLP-1 segment with around 54% value market share, primarily on the back of its semaglutide medicines.
Wegovy has become the key top-line contributor for Novo Nordisk. Despite supply challenges, Wegovy is seeing strong prescription trends and is generating impressive revenues and profits. The company is investing heavily to ramp up its production capacity to meet the growing demand. Ozempic sales are also contributing to the top line.
Wegovy’s label was expanded to reduce the risk of serious heart problems in obese/overweight adults, which has been boosting its sales. It is also expected to improve insurance coverage for Wegovy, making it more accessible and affordable to patients. A regulatory filing for the drug for the same indication is also under review in the EU.
However, Novo Nordisk faces serious competition from Eli Lilly (LLY - Free Report) in this market space. Lilly has seen unparalleled success with tirzepatide, a dual GIP and GLP-1 receptor agonist, which is marketed as Mounjaro for T2D and Zepbound for obesity. However, NVO is investing heavily in increasing Wegovy supply, both in the United States as well as in international markets, to meet demand.
Pfizer (PFE - Free Report) is developing its GLP-1 candidate, a once-daily formulation of danuglipron, for obesity.
Amgen (AMGN - Free Report) also has a GLP-1 receptor candidate, MariTide (maridebart cafraglutide), for obesity in its pipeline, currently undergoing mid-stage development.
Novo Nordisk is also studying semaglutide for additional indications.
Novo Nordisk is evaluating Wegovy’s efficacy in phase III studies for the treatment of heart failure with preserved ejection fraction in diabetes and obesity patients.
Novo Nordisk is also looking to expand Ozempic’s indication to treat T2D and chronic kidney disease as an adjunctive therapy. Additionally, the company is also conducting a phase III study evaluating semaglutide for nonalcoholic steatohepatitis.
Such efforts to expand the indication of semaglutide are encouraging, as they will increase the eligible patient population of the drug, subject to approval.
The company is also working on diversifying its portfolio beyond diabetes and obesity care to develop new treatments in other areas. Novo Nordisk is making serious strides in the development of Mim8 as a treatment for hemophilia A patients. Based on encouraging phase II data, NVO plans the first regulatory filing for Mim8 by 2024-end.
Last month, an Oxford study demonstrated that treatment with Novo Nordisk’s semaglutide was associated with benefits like lowering the risk of cognitive problems and nicotine misuse. This opens the scope for further evaluation of the drug to potentially treat several brain ailments.
Rising Sales and Margins
Novo Nordisk, with a market cap of around $600 billion, has one of the broadest diabetes portfolios in the industry.The company improved its global diabetes value market share in 2023 from 31.9% to 33.8%, primarily due to market share gains in both North America and International operations.In 2023, Novo Nordisk’s GLP-1 sales in diabetes jumped 52%.
In the past five years, total revenues generated by the company surged 90.3% on a reported basis.In 2023, the company reported a net profit margin of 36%, which is the highest recorded in the past five years. During the same period, NVO’s net profit margin remained above 31%, showing consistency.
We believe the stock has the potential to rise further with consistently strong sales of Ozempic and Wegovy.
Valuation and Price
Novo Nordisk has rallied 25.6% in the year-to-date period compared with the industry’s 21% growth, as seen in the chart below. The stock has also outperformed the sector and the S&P 500.
Novo Nordisk is trading at a discount to the industry. Going by the price/earnings ratio, the company’s shares currently trade at 13.93 forward earnings, lower than 17.59 for the industry. This suggests that the stock is currently undervalued in the market, and the opportunity should be utilized by new investors to make an entry.
Conclusion
In the past five years, shares of Novo Nordisk have skyrocketed more than 400%. Growing market share and profit margins suggest that the company has the potential for further growth in the years to come, primarily driven by increased sales of Wegovy and Ozempic. The updated sales outlook for 2024 indicates higher full-year expectations for both North America and International operating units.
Furthermore, the company is looking to expand the indications for Wegovy and Ozempic to increase patient eligibility. Subject to approval for such indications, revenues generated from their sales will further boost the top line. The company is also developing multiple other novel obesity candidates to get the edge over its arch-rival, Lilly. The U.S. obesity market has tremendous potential in the years ahead.
Thus, we can conclude that the earnings miss in the second quarter should not bother investors. In fact, NVO’s discounted valuation makes the current stock price a lucrative entry point for potential new investors as well as provides an opportunity for those who are already invested to increase their holdings.
Novo Nordisk currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.