Novo Nordisk A/S
) has been on an uptrend since July 2012, thanks in large part to
strong second quarter results. However, this Denmark-based
healthcare company is also benefiting from a growth-oriented sales
guidance and an impressive portfolio of diabetes products. ADRs of
Novo Nordisk hit a 52-week high of $169.74 on October 19.
With a more than 46% year-to-date return and a long-term growth
projection of about 18.4%, this Zacks #1 Rank (Strong Buy) looks
like a solid growth pick.
Strong Second Quarter and an Upbeat Guidance
On August 9, Novo Nordisk reported second quarter 2012 earnings of
$1.60 per American Depository Receipt, up approximately 20% from
the year-ago period. On a half yearly basis, earnings were
approximately $3.08 per ADR, up approximately 17% from the
comparable period last year.
Revenues increased 22% on a reported basis and by 13% in local
currency basis compared to the same period in 2011.
Novo Nordisk increased its sales growth guidance for 2012 to
between 9% and 12% in local currencies, up from the previous
guidance of 8% to 11%. Continued market penetration of key products
is expected to drive sales growth.
Encouraging Pipeline News
On October 19, the Committee for Medicinal Products for Human Use
(CHMP) of the European Medicines Agency (EMA) recommended the
approval of NVO's diabetes candidates Tresiba and Ryzodeg in the
European Union (EU). A final decision on the approval of the
candidates is expected from the European Commission by year end.
The candidates, currently under review in the US, were approved in
Japan in September 2012. If the diabetes candidates are approved in
the EU as well as in US, Novo Nordisk's top line would be boosted
Earnings Momentum Grows
Over the last 90 days, the Zacks Consensus Estimate for 2012
climbed approximately 5.5% to $6.38 per ADR, including an advance
of 4% in the past 30 days. For 2013, the Zacks Consensus Estimate
has increased 8.7% in 3 months to $7.64 per ADR, with a gain of 4%
in the past month.
The earnings estimate for 2012 represents a year-over-year jump of
approximately 19.8%, while the estimate for 2013 suggests an
increase of 19.9%.
Premium Valuation Justified
Novo Nordisk currently trades at a forward P/E of 26.4x, reflecting
a huge premium of 84.6% to the peer group average of 14.3x. Also,
on a price-to-book basis, ADRs are trading at 18.0x, a 318.6%
premium to the peer group average of 4.3x. Given the company's
strong product portfolio and pipeline, the premium valuation is
justified and well supported by its long-term estimated earnings
growth rate of 18.4%, compared to the peer group average of 6.2%.
A Look at the Chart
The chart below shows that the stock has been consistently trading
above both the 200-day and 50-day moving averages since early July
2012. Volume is fairly strong, averaging roughly 240K daily. The
stock delivered a year-to-date return of 46.2%, outperforming the
S&P 500's return of 12.2%.
Headquartered in Bagsvaerd, Denmark, Novo Nordisk is a global
healthcare company with a market cap of $97.4 billion. The company
is a world leader in the field of diabetes care, and one of the
leading players in the fields of hemophilia care, growth hormone
therapy and hormone replacement therapy. Novo Nordisk markets its
offerings in more than 180 countries across the globe.
Novo Nordisk operates in two segments - Diabetes Care and
Biopharmaceuticals. Marketed products of the Diabetes Care unit
include Victoza, Levemir and NovoRapid. Products in the
Biopharmaceuticals segment include NovoSeven and Norditropin.
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