Skip The Market Darling Eli Lilly; Buy The Underdog Novo Nordisk
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Louis Liu, Esq514 FollowersFollow5ShareSavePlay(22min)CommentsSummaryNovo Nordisk (NVO) appears undervalued relative to Big Pharma peers, especially given its superior long-term growth and profitability metrics outside of recent setbacks.NVO’s two-thirds market cap decline stems from a series of adverse events, some justified but many overdone, with the market ignoring positive developments.Despite recent underperformance versus Eli Lilly, NVO maintains industry-leading margins, robust cash flow, and strong growth prospects, notably with oral GLP-1 candidates.I rate NVO a modest BUY; downside is limited by low valuation, but substantial competitive and patent risks require vigilant monitoring.I rate Eli Lilly a cautious HOLD as its stock is priced for perfection and its leadership position in GLP-1 race is not yet assured. contrastaddict/iStock via Getty Images Introduction In this article, I will compare Novo Nordisk (NVO) directly against its archrival Eli Lilly (LLY), and other 5 large-cap Big Pharma companies, to determine whether NVO is undervalued. I will also reviewThis article was written byLouis Liu, Esq514 FollowersFollowI am a corporate lawyer with an MBA and a long-standing interest in value investing. After spending 7 years practicing at several prestigious Wall Street and Silicon Valley law firms as a corporate transactional lawyer, I founded and have been operating my own boutique law firm for the last 10 years, focusing on investment transactions and the resolution of investment disputes. I occasionally write here to clarify and organize my own thinking. My goals are twofold: (1) to identify reasonably priced companies with steady long-term growth prospects, and (2) to uncover small- and mid-cap companies with the potential for exponential growth — both through careful fundamental analysis of their businesses, financials, and valuations. I firmly believe that highly educated individuals can substantially outperform the market if they possess the right temperament and are willing to learn basic accounting and financial principles.Analyst’s Disclosure:I/we have a beneficial long position in the shares of NVO either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. I own shares in Novo Nordisk (NVO) and Viking Therapeutics (VKTX).Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.Quick InsightsHow does NVO’s valuation compare to peers, and what justifies a weak BUY rating?NVO trades at a GAAP P/E TTM of 13.2, far below most Big Pharma peers, despite higher profitability and growth; I rate it a BUY due to undervaluation but acknowledge significant competitive and patent risks.What could catalyze a reversal in NVO’s negative sentiment and stock price?Approval and strong commercial uptake of NVO’s high-dose oral semaglutide for obesity could meaningfully boost sentiment and valuation, especially if it precedes Eli Lilly’s competing oral GLP-1 launch.What are the most material risks to the NVO investment thesis?Key risks include continued competitive lag versus Eli Lilly, margin pressure from payor agreements, and looming patent cliffs for semaglutide, with U.S. protection expiring in 2031 and earlier in some markets.Recommended For You