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Novo Nordisk A/S (ADR) (NVO): Still a Buy, Despite the Tresiba Setback

Novo Nordisk Current Valuation

Novo trades at 26 times trailing earnings. Analyst expectations are for $8.36 in EPS for the current fiscal year, and the current stock price is 20 times that figure, compared to its peer average of 21x. Novo has an impressive cash flow generation, and when I look at the enterprise value implied by the current stock price, it is 16x trailing EBITDA, in-line with the rest of the industry. The current ratio is 1.90; the firm is liquid. Moreover, Novo pays a dividend that has grown rapidly since it was first started.

The share count has already fallen from over 640 million in fiscal 2009 to 580 million at the end of 2012, and considering the management’s plan to spend a big chunk of the future cash flow on buybacks and dividends, this trend should continue.

Foolish Bottom-Line

In short, despite the Tresiba setback, Novo Nordisk fundamentals still remain strong and after the discount afforded by the most recent sell-off, shares are certainly approaching an attractive risk/reward zone. All told, I expect a long-term revenue growth outlook of 9% to 10%, along with a steady improvement in the cash flow generation — Novo can grow its cash flow at a 7%-9% rate for the long term. However, I would wait for the shares to drop to the mid-to-high $150-$155 level, as the shares present an optimal risk/reward there. Sub-$155 is where I will start a long-term position.

The article Still a Buy, Despite the Tresiba Setback originally appeared on and is written by Nauman Aly.

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