During the October 1 lightning round of Mad Money, a caller said they owned both Novo Nordisk A/S (NYSE:NVO) and Eli Lilly and Company (NYSE:LLY). After contrasting their share-price performance, they asked which offered better upside over three to five years. Jim Cramer replied:
I’d still go with Lilly. It’s a high quality stock. Now, this new guy, Mike Doustdar, he is trying really hard at Novo Nordisk, but he’s up against Dave Ricks, who’s like one of the most competitive guys… I want to stay with Lilly.
Cramer previously discussed the reason for what made Eli Lilly a core “running back” stock.
Lilly’s Growth Leads While Novo Expands Its Wegovy Offering
Eli Lilly and Company reported second-quarter revenue of approximately $23 billion, up 48% year-over-year. Mounjaro revenue increased 91% to approximately $9.9 billion, while U.S. Zepbound sales rose 44% to approximately $4.9 billion. Net income increased 25% to approximately $7.1 billion.
Novo Nordisk A/S also reported progress, although its growth was slower. Second-quarter adjusted sales increased 7% at constant exchange rates to approximately DKK78.5 billion (DKK1 = US$0.15), while adjusted operating profit rose 11% at constant exchange rates to approximately DKK33.4 billion. As per Novo’s August update, the Wegovy pill had exceeded five million prescriptions since launch. The company had also introduced the pill in the United Arab Emirates and the United Kingdom, with further international launches planned. Those developments give Novo additional ways to compete beyond its established injectable products. Among the two, one made it to the list of best ROE stocks to buy.
Novo Offers a Much Lower Entry Multiple
Readings place Novo Nordisk A/S at approximately 11x forward earnings, compared with 30x for Eli Lilly and Company, which means Lilly trades at more than twice Novo’s earnings multiple. That gap is important to the caller’s longer-term question. Novo offers the lower valuation, while Lilly’s premium accompanies much faster recent revenue growth. The comparison presents different starting expectations rather than an equally priced choice between two obesity-drug businesses. It is worth noting that NVO recently beat LLY in a trial.
Pricing Pressure and Pipeline Setbacks Remain Relevant
Novo Nordisk A/S’ improved outlook still calls for full-year adjusted sales and adjusted operating profit to range from flat to a 6% decline at constant exchange rates. It also recorded DKK6.3 billion in non-cash impairment charges tied to pipeline assets. The Phase 3 ZEUS trial of ziltivekimab failed to meet its primary endpoint, which adds another setback outside the core obesity business.
Eli Lilly and Company’s sales growth is not immune to pricing pressure. Second-quarter worldwide volume increased 60%, but realized prices fell 13%. In the United States, prices would have declined approximately 9% without favorable adjustments to rebate and discount estimates. Research and development spending increased 14% to approximately $3.8 billion, while marketing, selling and administrative expenses rose 25%.
Lilly Gains More Fund Holders
Insider Monkey tracked 152 hedge funds holding Eli Lilly and Company in the second quarter, up from 132. Novo’s count rose to 59 from 55. Short interest was almost identical at 0.84% of Lilly’s float and 0.83% of Novo’s. Lilly attracted more additional fund holders, but neither stock had a large reported short position.
Cramer is staying with the company delivering faster growth. Novo Nordisk A/S’ lower multiple makes it a different proposition: investors would be buying into a recovery that remains incomplete. Over the caller’s three-to-five-year horizon, product adoption and realized pricing will matter more than the past year’s stock performance, especially with such different earnings expectations already reflected in the shares.
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