BofA cuts Novo Nordisk shares target on expected Q1 earnings miss

Investing.com -- Bank of America (NYSE:BAC) (BofA) on Friday lowered its price target for Novo Nordisk (CSE:NOVOb)k (NYSE:NVO) shares, cautioning that the company may miss its first-quarter earnings projections as sales of its megahit drugs Wegovy and Ozempic, lag.

BofA analysts expect Novo Nordisk's first-quarter sales to reach 77 billion Danish kroner (DKK), a 17% year-over-year increase, and earnings before interest and taxes (EBIT) to hit DKK 36 billion, up 14% from the previous year. These figures are approximately 1-2% below the Visible Alpha consensus.

The analysts have identified several key factors that could contribute to a potential earnings miss for the first quarter.

These include a challenging comparison with the first quarter of 2024 due to a large gross-to-net (GTN) benefit that significantly boosted growth, as well as the highest margin quarter of fiscal year 2024, which sets a high comparison baseline.

Moreover, there could be increased sales, general, and administrative (SG&A) expenses related to demand creation and Catalent (NYSE:CTLT) dilution. The BofA team projects a margin decline of around 120 basis points year-over-year.

Specifically, the bank forecasts Ozempic's first-quarter sales at DKK 31 billion, a 10% year-over-year increase but roughly 6% below consensus. Wegovy's sales are predicted to be DKK 18.6 billion, with an anticipated sequential decline in the U.S. due to decreasing total prescriptions (TRx) and a slight assumed price decline.

Looking ahead, BofA expects Novo Nordisk to lower its sales guidance from 16-24% in constant exchange rates (CER) to 14-22%, with firm's own forecasts at the lower end of this new range.

“Within this we assume (1) limited Ozempic/Wegovy inflection in 2Q, given compounders remain until May. 2Q is an “easy” comp for both Ozempic/Wegovy; (2) The key unknown is if a 2H25 inflection happens against tougher 2H24 comps,” BofA analysts led by Sachin Jain noted.

“Our forecasts assume a Wegovy exit rate of 340k and Ozempic TRx increase to 650k, on which we have low visibility,” they added.

BofA has reduced its fiscal year 2025/26 earnings per share (EPS) estimates from high single digits to low double digits percentage.

Consequently, the firm has lowered its price objective for Novo Nordisk to DKK 910/$127.40 from the previous DKK 1,075/$159.4.

Despite the near-term headwinds, BofA maintains a Buy rating on Novo Nordisk's stock. The firm highlights the drugmaker’s current valuation, which is near a 10-year low on price-to-earnings (PE) ratio, and the stock's multiples that reflect a 'cliff-stock' despite robust forward sales compound annual growth rate (CAGR) projections of approximately 12-13%.

“Novo remains a key participant in large obesity/diabetes GLP1 market,” the note concludes.