Why Did Novo’s Share Price Fall after Fiscal 2015 Earnings?
What Factors Support Novo Nordisk's Premium Valuation?
Share price performance
Novo Nordisk (NVO) released earnings for the fourth quarter and fiscal 2015 on February 3, 2016. The company beat revenue estimates by 0.1% and came in 2.5% below earnings estimates. Following the earnings release, the stock fell by 6% on the same day. The fall was not on account of fundamentals, but rather due to disappointing earnings and a lowered fiscal 2016 outlook.
Perhaps investors overreacted to the earnings announcement. With the news of the share repurchase program, the stock began to recover. The graph below demonstrates the share price movement of Novo’s ADR.
Peer share price performance
The share price for Novo has fallen by ~0.63% over the past year, whereas Eli Lilly (LLY) has fallen by 4.0% during the period. However, Merck (MRK) and Sanofi (SNY) have underperformed the most and have tumbled by 8.5% and 22.4%, respectively.
Sanofi’s fall can be explained by the falling diabetes drug sales, which could in part be due to the pipeline success of Novo and Eli Lilly, which has put more pressure on Sanofi and Merck.
On March 5, Novo announced success for its Victoza trial. The details of the trial can be found at, Why Investors Are Cheering the Results of Novo’s Victoza Trials.
Continuous innovation in the diabetes space is putting fierce pressure on the companies in the segment. Novo came up with Xultophy, a combination of Tresiba and Victoza. Sanofi’s Toujeo is facing competition from Novo’s Tresiba. With the launch of Xultophy, Sanofi might lose further Toujeo sales. For further information on Victoza, please refer to, How Did Novo’s Victoza Become a Leading Diabetes Drug?
As the share price is quite susceptible to any industry or company-specific event, the risk-averse investor can look for options such as the Market Vectors Pharmaceutical ETF (PPH). PPH holds 5.0% of its total holdings in Novo Nordisk stock.
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