Bank of America Calls Novo Nordisk Stock Valuation ‘Very Compelling’

Bank of America (BofA) has revised its price target for Novo Nordisk shares, lowering it to DKK1075 from the prior DKK1150, in response to updates in earnings per share (EPS) projections. The bank also reduced the price target for Novo’s US-listed shares from $166 to $159.5.

These adjustments stem from a more cautious outlook on the company’s key products, Wegovy and Ozempic, due to slower growth and challenges in ramping up supply.

BofA projects that Novo Nordisk’s sales for the third quarter will reach DKK69.4 billion, reflecting an 18% year-over-year increase, with earnings before interest and taxes (EBIT) expected to be around DKK33 billion, up 23% from the previous year. These anticipated figures are slightly below consensus estimates, with Wegovy’s sales forecasted at approximately DKK16.5 billion, falling short of the Visible Alpha consensus of about DKK17 billion.

Ozempic is expected to generate sales of DKK27.1 billion, marking a 13% increase, but is facing headwinds from slowed growth and prior rebate changes.

BofA analysts have also lowered their fiscal year 2024 EPS estimates by around 2%, attributing the revision to Ozempic’s declining growth rate and a slower supply ramp-up for Wegovy. The EPS forecast for fiscal year 2025 has been cut by approximately 5%, reflecting current trends.

Despite these changes, BofA continues to endorse a Buy rating for Novo Nordisk, bolstered by the strong prospects of the company’s CagriSema Phase III trials and a favorable valuation. Analysts highlighted that the upcoming CagriSema PIII data, expected in the fourth quarter of 2024, is critical to the investment case, suggesting that investor apprehension leading up to the data release may keep shares relatively flat until the results are known.

Overall, analysts perceive a repeat of the investor sentiment seen in the first half of 2023 regarding SELECT data, suggesting a potential for an extreme share price move of about 15-20% based on the CagriSema PIII results. They also find the current valuation attractive, with shares trading at approximately 26 times the projected earnings for fiscal year 2025.

Novo Nordisk’s shares have declined approximately 25% from their peak, influenced by disappointing results from CB1 studies and weak performance trends for Ozempic and Wegovy. Analysts stress the importance of the company developing a credible oral strategy, particularly in light of the uninspiring CB1 data and the anticipation of competitor Eli Lilly’s Phase III results for orforglipron in the second quarter of 2025.

They also point out the difficulty in sustaining confidence in an ongoing EPS upgrade cycle, especially given the recent slowdown in Ozempic and the uncertain supply landscape for Wegovy.