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Novo Nordisk: Earnings Are In, When Will This Stock Lift Off?

Summary

In Q1 2016, Novo Nordisk continued its excellent run.

Unfortunately, as numbers are slightly less higher than originally expected, overall valuation remains high.

Novo Nordisk is still struggling with its FX hedging strategy.

The stock seems stuck, but if Novo Nordisk hits gold in their pipeline, the share price will adjust and go above $60.

Novo Nordisk (NYSE:NVO), as I pointed out in my earlier articles, is one significant powerhouse which can't be ignored by long-term investors. If anyone would look at risk-adjusted performances in the world of investable equities, Novo Nordisk sits right on top. Novo Nordisk has shown remarkable performance over the last few decades. There won't be many people who will deny this.

There were some concerns in the beginning of the year, but as I discussed, this negative sentiment should be ignored. And right so, the firm is back on track nearly 20% higher since I published my last article in February:

But that doesn't change the current issues circling around Novo Nordisk. The firm recently announced results of Q1 2016, and it's worth revisiting the investment thesis. This article has a specific focus on the fundamentals.

Novo Nordisk: Another Quarter, Another success?

Sales saw an increase of 8%, R&D went up by 2% while earnings went down 4%. In my view, these are all very feasible growth rates, aligned with the 8% growth in revenue. To put the 8% revenue growth in historical perspective over the last 12 years:

Over these 14 years, the firm saw a compounded annual growth rate of around 14.5%. The current 8% clearly indicates (as is shown in the graph) that the firm slowed down a little bit in the last few years.

The key takeaway in regards of net profit is that the decrease in earnings does not tell the entire story:

Earnings in comparison to Q1 2015 seem disappointing, yet there is a significant offset due to partial divestment of NNIT A/S.

Novo Nordisk IT (NNIT) is an in-house IT developer. NNIT got an IPO in 2015. It currently provides IT services to its parent and other companies such as Maersk. It employs around 2,500 employees. Novo Nordisk currently remains shareholder with a stake of over 25%.

Overall, share performance has not been that great in contrast to its old parent:

Source: Yahoo Finance

As Novo Nordisk divested NNIT, when that offset is taken away, the firm actually made an increase in earnings. Adjusted for the partial divestment, net profit and diluted earnings per share increased by 20% and 23% respectively. These are high double digit numbers, and excellent for a firm of the size of Novo Nordisk.

Novo Nordisk: Revenue

Growth in revenue was mostly driven out of the USA, positively impacted by...


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