Why Novo Nordisk Stock Plummeted

 

• Novo Nordisk cut its full-year guidance after sales pressure from U.S. compounders.

• Analysts downgraded the stock following the earnings release, believing the threat is significant.

• The stock now trades at one of its lowest price-to-earnings ratios in years.

Shares of Novo Nordisk (NYSE: NVO) fell on Wednesday, down 7.2% as of market close. The drop comes as the S&P 500 (SNPINDEX: ^GSPC) and the Nasdaq Composite (NASDAQINDEX: ^IXIC) fell modestly.

The pharmaceutical giant's stock continues to fall after a disappointing earnings release yesterday that included a guidance cut. The news led to downgrades from at least two prominent analysts.

Novo sees sales weaken

Novo's two GLP-1 drugs, Wegovy and Ozempic, have been blockbusters for the company. The success of its weight loss drugs propelled Novo to become the most valuable company in Europe before competition from "compounders" -- companies that market their own tailor-made versions using its active ingredients -- impacted sales, and its stock declined.

The pressure continues, leading Novo to adjust full-year sales targets downward from a range of 13% to 21% to 8% to 14%. It also cut its operating profit targets from between 16% and 24% to between 10% and 16%.

Analysts were not impressed

Novo's leadership, including its new CEO, struck an optimistic tone, believing that compounders don't present a significant threat. Wall Street analysts seemed to disagree, leading Barclays analysts to downgrade the stock to "equal-weight" from "overweight" and Bank of America analysts to downgrade the stock to "neutral" from "buy."

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