Novo Nordisk Stock: Surging 68% in 12 Months, Still Worth Buying?

Novo Nordisk Stock

Over the past year, shares of healthcare behemoth Novo Nordisk (NYSE:NVO) have witnessed a remarkable surge, climbing by 68.9%. With a market capitalization now standing at $579 billion, the company has delivered exceptional returns to its shareholders, adjusting for dividends, over the past eighteen years. Novo Nordisk is primarily involved in the research, development, manufacturing, and distribution of healthcare products globally, particularly in Europe. Its business is segmented into Diabetes and Obesity Care, and Rare Diseases.

Recently, Novo Nordisk’s stock has reached record highs, significantly benefiting its shareholders. However, the question arises: is it still a prudent investment at its current valuation?

Driving Novo Nordisk’s Growth

One of the key drivers of Novo Nordisk’s growth is the recent approval by the U.S. Food and Drug Administration (FDA) for its weight-loss drug, Wegovy, for an additional indication. This approval enables Wegovy to be utilized in reducing cardiovascular risk among overweight patients, thereby creating an additional revenue stream for the company within its highly successful obesity treatment segment. Additionally, Novo Nordisk is developing a weight-loss pill, displaying promising results in clinical trials, which has shown a potential weight reduction of 13% over 12 weeks, surpassing Wegovy’s 6% weight loss.

Despite its already substantial size, Novo Nordisk managed to increase its sales by 36% year-over-year, reaching $33.7 billion in 2023. Wegovy played a pivotal role in driving this revenue surge, accounting for 13.5% of the total sales, with its sales skyrocketing by a staggering 420% in the last twelve months. Novo Nordisk estimates that there are over 800 million obese individuals worldwide, with only a small fraction undergoing treatment, providing significant growth opportunities for the company in the coming years.

Novo Nordisk’s Significant Acquisition

In a recent development, Novo Nordisk announced its intention to acquire Cardior Pharmaceuticals for $1.1 billion, with additional payments tied to certain development and commercial milestones. Cardior specializes in discovering and developing therapies targeting RNA to prevent, repair, and reverse heart diseases. The acquisition encompasses Cardior’s primary compound, CDR132L, presently undergoing phase 2 clinical development for the treatment of heart failures. The acquisition aligns with Novo Nordisk’s strategy to enter the cardiovascular disease space and address unmet needs within this sector. The company anticipates closing the deal in the second quarter of 2024, with no adverse impact on its operating profit outlook for the year, leveraging its $30 billion cash reserves.

Target Price Analysis

Analysts foresee a robust growth trajectory for Novo Nordisk, with sales expected to increase by 23.5% to $41.77 billion in 2024 and further by 18.2% to $49.4 billion in 2025. Adjusted earnings per share are projected to expand from $2.71 in 2023 to $3.37 in 2024 and $3.97 in 2025. Although Novo Nordisk’s stock is currently priced at 38 times forward earnings, signaling its high valuation, it is poised to achieve over 40% earnings growth in the next two years.

Analysts’ sentiment towards Novo Nordisk stock remains largely positive, with six out of twelve analysts recommending a “strong buy,” one suggesting a “moderate buy,” two advising “hold,” and one indicating a “moderate sell.” The average target price for NVO stock stands at $142.25, representing a potential upside of approximately 10.2% from Monday’s closing price.

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