Novo Nordisk NVO

Thesis

I think the market overestimated the magnitude and immediacy of Novo’s patent problem. Patent expirations are inevitable. The question is how much revenue and earnings disappear, how quickly, and what Novo builds in the meantime.

The pill business is a key part of my bet. Novo identifies oral formulation patent protection extending into the late 2030s. I expect that longer runway to help sustain earnings as earlier patents expire. Formulation patents protect particular claims, so competition and patent challenges still matter.

Decisions

I bought on September 22, 2026 at an average of $39.52. I thought the selling was nearing exhaustion and the price was attractive against the earnings I expected Novo to sustain. I also compared the stock with its history before Wegovy, while considering how the business and its earnings had changed.

I’m comfortable holding through 2030 as long as the earnings thesis remains intact.

What I expect

September’s Investor Day increased my confidence in Novo’s earnings durability. I’m using approximately $4 in adjusted EPS for 2026 and expecting annual earnings growth of 3% to 4% through 2030. These are my estimates.

I expect Wegovy pill prescriptions to increase and prices to fall. Novo plans to expand capacity to serve ten times as many oral obesity patients by 2030. Capacity creates room for growth, although it does not guarantee demand. I expect increasing volume and cost efficiencies to help offset lower prices.

My working patent scenario assumes affected semaglutide revenue falls approximately 50% in each market over the first two years of meaningful generic competition. The timing differs by market. I expect internal R&D and acquisitions at sensible prices to help replace lost revenue. This scenario informs my earnings outlook rather than adding another haircut to it.

Balance sheet

As of June 2026, total debt was roughly 1 times EBITDA and net debt approximately 0.6 times, after removing a large nonrecurring benefit from earnings. Selected large pharmaceutical peers were around 1.6 to 2.1 times net debt to EBITDA, with differences in accounting adjustments.

That is relatively low leverage. Novo has room to fund internal R&D and acquisitions. What matters is whether it develops or buys the right drugs at sensible prices.

Valuation

At my entry, $4 in adjusted EPS implies roughly 10 times earnings. With 3% to 4% annual earnings growth and an assumed multiple of 12 to 15 times earnings, my estimated 2030 stock price is approximately $54 to $70. That represents roughly 37% to 78% price appreciation before dividends.

The estimate depends on margins holding broadly steady and the market becoming more confident in Novo’s earnings. As prescriptions grow and earnings demonstrate resilience despite falling prices, I expect the market to assign a higher multiple and reprice the stock upward.

For a downside scenario, $3 adjusted EPS at 9.5 times earnings gives $28.50, approximately 28% below my entry. That is a stress case, and further downside is possible. Dollar estimates are per ADR and hold exchange rates steady.

Dividends

Novo pays twice a year, with a larger spring payment and a smaller August payment. At the exchange rate used in my model, the annual payout is approximately $1.83 per ADR, equivalent to 4.6% of my entry price.

I assume dividend growth of approximately 0.4% annually, consistent with the latest increase in calendar-year payments. That would generate approximately $7.39 per ADR during 2027 through 2030, adding roughly 19 percentage points to my return. Most of that comes from maintaining the payout. Growth itself adds about $0.08 over four years. The estimates assume continued payments and exclude reinvestment, taxes and fees.

What would change my mind

Government pricing pressure and product liability are the legal and regulatory risks I’m watching most closely. Lower prices could weigh on margins. Safety litigation could bring financial costs, stronger warnings or changes in prescribing.

In my judgment, these risks do not currently make or break the thesis. I already expect prices to fall. I would reassess if pricing pressure or safety restrictions materially weakened the earnings outlook.

The patent cliff could keep weighing on the multiple. My thesis breaks if Novo cannot replenish its pipeline through innovation or responsible acquisitions and sustain earnings as exclusivity fades. If the stock recovers enough that the price offers little room for disappointment, I would revisit the opportunity.