Novo Nordisk A/S Trading at a Discount? An Analysis

Despite rebounding 5% over the past week from the loss of the Metsera takeover, Novo Nordisk A/S (NYSE: NVO) is still at 52-week lows. Is this price justified? Or is NVO trading at a significant discount due to near-term headwinds despite its GLP-1 dominance?

Company Overview

Novo Nordisk is a pharmaceutical company that's engaged in diabetes care. The compnay has two business segments: diabetes and obesity care, and biopharmaceuticals. They're probably best known for their diabetes and obesity care segment, which covers insulin, weight loss drug GLP-1 (like Ozempic and Wegovy), oral anti-diabetic drugs, and other protein-related products. The Company's biopharmaceuticals segment covers the therapy areas of hemophilia care, growth hormone therapy and hormone replacement therapy.

Key Metrics and Drivers

Market Cap (DKK)	Revenue (TTM)	Net Income (2024)	EPS	P/E	Profit Margin (Q2)	ROE	Year High	Year Low	Share Price
202.43 Billion	305.6 Billion	103 Billion	3.61	12.73	34.48%	71.46%	$112.52	$45.05	$49.15

1. GLP-1 dominance - NVO holds around 53% of GLP-1 prescriptions, and despite trimming down sales growth to 8-11% this quarter due to near-term capacity constraints and slowing down GLP-1 growth, Q3 revenue came in at DKK 77.9M, which is a 11.7% increase YoY.

2. Manufacturing Powerhouse and Expansion - NVO acquired three Catalent fill finish sites, giving a volume/quality advantage and derisking from supply shocks. Despite increased capital expenditures, gross margins remained at 83% and the expansion has allowed management to target a Free Cash Flow yield of 4%.

3. Still going strong with Sales - Wegovy sales increased by 58% and obesity care sales reached DKK 38.8bn in the first half of 2021, free cash flow is at DKK 33.6bn.

4. R&D Moat - NVO invests heavily in its trials. For example, the REDEFINE-1 trial showed that CagriSema (an obesity drug that includes GLP-1) had a 22.7% average weight loss at 68 weeks.

Major developments are underway, and if ongoing trials work out, it can massively expand the addressable market for weight loss drugs. Phase 3 programs for CagriSema are already underway.

NVO's oral drug, Amycretin, is also scheduled to start in 2026, so the Pipeline is strong.

Valuation

NVO is trading at a discount following a 40% sell-off since its all-time highs.

Looking at Peer Comps:

• NVO is trading at a forward P/E of 12.7x compared to Eli Lilly's forward P/E of 32.9x and the industry average of 14.2x.

• We believe the current P/E of 13 is temporarily depressed due to guidance cuts and the near-term headwinds. Historically, the 5Y average P/E was 26.5x

• The EV/EBITDA is only 9x compared to Eli Lilly's 35x.

Novo trades at a discount to Eli Lilly despite a robust pipeline and a strong GLP-1 franchise, offering a premium justified by scale, margin, and global market leadership.

For our DCF Valuation:

Our base case assumes a 7.9% WACC and a 2.5% terminal growth rate, in line with industry standards. Growth rate of 10% despite a 3Y CAGR of 19% to reflect the slowing GLP1 market. Our model shows an intrinsic value of 440 DKK, which is around 68$, highlighting an upside of 38%.

Given the competitive landscape of the obesity and diabetes market, NVO may never reach their all-time highs again, but it's still a worthy investment.

Key Risks

1. Pricing Compression - As confirmed by the Trump administration, prices under Trump Rx of GLP-1 related products will go from $1000/month to $150 - $350 / month. But a key counterpoint is that this widens the access to weight-loss drugs, and the price erosion still allows for high sales growth.

2. Capacity Constraints - Would be a problem to limit growth; however, the acquisition of the 3 fill finish Catalent sites allows output to increase significantly.

3. Major Competition - The future landscape is unknown, Eli Lilly is a strong competitor with their Zepbound, and Pfizer is also trying to pry in. There has already been guidance cuts and more may come. Yet the market is large enough for multiple winners since

4. New Leadership - Hard for CEOs to turn around ship. But CEO Mike Doustar has deep knowledge of operations.

5. Safety Risks and Trial Uncertainty - Semaglutide has been tested for over 6 years and shows no signs of health risks. This can't be said of the REDEFINE trials, which are still ongoing.

Takeaway

Given the leadership in the obesity market, NVO rating is a BUY, with a price target of $60. Right now is an attractive entry point for investors. Investors should still be aware of near-term headwinds, such as US compounding rules, capacity issues, or political concerns. Pharmaceuticals are often judged by their trials, too. If CagriSema or other trials fail to meet expectations, we can see some pullback. As we mentioned above, Eli Lilly is a strong competitor, so it's a good idea to spread your portfolio across multiple companies in this sector to keep your exposure in check.

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