Market Commentary: Shocking 2030 Trend Will Make Millionaires
What percentage of the US population is obese? Go on, hazard a guess. What do you think the figure is without looking it up?
According to Healthline, a little over 42% of the US population is clinically obese. And that figure is expected to balloon to 50% by 2030.
One of the huge winners in treating obesity is Ozempic manufacturer, Novo Nordisk. The company’s revenues have been on a steady march higher for years.
- 2019: $18.3 billion
- 2020: $20.8 billion
- 2021: $21.5 billion
- 2022: $25.4 billion
Operating income has been impressive too.
- 2019: $5.8 billion
- 2020: $6.9 billion
- 2021: $7.3 billion
- 2022: $7.9 billion
But will the share price continue its steady ascent?
The Bull Case For Novo Nordisk
Novo Nordisk is a well-positioned as a leader in the diabetes market and has a strong pipeline of innovative products. The company is tethered to the growing diabetes epidemic with a 25% market share.
Several factors lend themselves to a bullish investment thesis for the firm:
- The global population of diabetes sufferers is expected to increase to 642 million by 2040, driven by aging populations, obesity, and lifestyle changes.
- Novo Nordisk has a number of products in development that could help it to maintain its market leadership. These products include new insulins, oral diabetes drugs, and continuous glucose monitors.
- Financially, Novo Nordisk has a sturdy balance sheet and generates enormous cash flows, which enable it to reinvest profits to support future R&D.
What Could Go Wrong?
Few investments tick all the boxes and that’s true with Novo Nordisk too, which faces a host of challenges over the coming decade, including:
- Heightened competition: Novo Nordisk faces increasing competition from other pharmaceutical companies such as Eli Lilly that has a solution widely regarded to be easier and more effective.
- Rising costs: The cost of developing new drugs is rising, and this could put pressure on the firm’s margins – as the company raises prices which in turn may hurt demand.
- A change in the reimbursement landscape from disruptive innovators like Transcarent could lead to changes in the way that diabetes drugs are reimbursed and in turn hurt profits.
Is Novo Nordisk a Buy?
There are lots of ways to evaluate whether a company is worth buying. One relies on dividends, which in the case of Novo Nordisk pays 1.01% annually. When we ran a dividend model to calculate a fair value for the company, the result was $190 per share, a hefty leap higher than the current share price.
We wanted to evaluate whether that was an accurate figure and ran a 5 year discounted cash flow model too, which put the intrinsic value at $191. On a 10 year time horizon, the number fell somewhat to $179.
The conclusion, however, from all three analyses is that Novo Nordisk still has a ways to go to reach its fair value, though analysts peg $161 per share which is closer to the current trading level.
