NVO's 2026 Q1 results are in. Since prices have risen recently, and it's being talked about on this sub again, I thought I'd attempt to compare its intrinsic values across a few different valuation models. Full disclosure, I have about 10% of my portfolio in NVO right now, after starting to buy this year. That said, I want to know, what do you think it's worth?

Model Summaries

FCFE Model: $55.73 Relative Valuation Model: $114.6 Ben Graham Formula: $69.72 Margin of Safety: 17.35-59.81%

Business Story

Novo-Nordisk is the second-largest pharmaceutical company in the diabetes/obesity market, behind competitor Eli Lilly. Its market share is approximately ~30% worldwide, versus Eli Lilly's ~35%.

I believe that Novo-Nordisk still enjoys a significant competitive advantage in the form of economies of scale and the remaining patents in its portfolio. At least, it does for now. This edge will probably be eroded away in the coming 5-10 years, as competition increases and patents expire.

There's considerable resistance in the US market specifically, where Eli Lilly enjoys regulatory favoritism. This is where I think the edge will most aggressively be destroyed in the coming years. Even so, its profits are still very healthy and are continuing to grow.

FCFE Model

In order to more accurately value Novo-Nordisk, I capitalized R&D expenses over the past 10 years. Saving you from the math, I estimated the R&D asset as worth about $26,857.59 million USD, the amortization this year to be worth $3,285.13 million USD, and the R&D expense this year was $8,179.81 million USD. After calculating many values, I added R&D into the mix to get a clearer picture of intangible assets, return on equity, and earnings or FCFE. The following numbers are in millions of USD.

• 5Y Normalized FCFE: $18,837.53 * Normalized to revenues over the past 5 years, because FCFE is usually quite volatile. * TTM Earnings: $20,626.68 * Capitalized R&D, net of non-operating income and interest. * Non-cash ROE: 47.83% * High Growth: (1-18837.53/20626.68) x 0.4783 = 4.149% * Terminal Growth: 3.548% * Using the long-term Netherlands government bond rate as a proxy for long-term nominal growth in the country. * Cost of Equity: 4.93 + ~1.191 x 4.23 = 9.966% * Using the RFR of the US, because I am valuing equity in US dollars. Aswath Damodaran's implied ERP is used here as well. The beta is a bottom-up beta, using total book debt in place of the market value of debt, as I expect Novo-Nordisk is not so distressed as to make a large difference there. * The beta used is forward-looking and higher than any recent historical regressions, reflecting risk associated with expiring patents and increasing competition. * Shares (diluted): 4446.4 million * I added the SBC shares outstanding; otherwise, it would be 4444 million shares.

No-Growth Value: $46.55

• (20626.68/4446.4)/.09966 = $46.55 * This implies that there is NO speculative element (i.e., attributable to expected growth) in the market price.

Estimated Value: $55.73

• High-growth stage: (1-1.04149^5/1.09966^5)/(0.09966-0.04149)x(18837.53x1.04149)/4446.4 = $18.05 * As competitive advantages all but entirely disappear, payout ratios will change to reflect this in order to maintain growth. Assuming a return on equity equal to the cost of equity in the terminal stage, payout becomes: * 1-0.03548/0.09966 = 64.40% * Cost of equity remains the same in terminal growth, as a beta below 1.2 is still reflective of a stable, mature firm like Novo-Nordisk. * Terminal-growth stage: $36.73 * Earnings (terminal): 20626.68x1.04149^5 = $25275.8 * FCFE (terminal): 0.644x25275.8 = $16277.6 * 16277.6x1.03548/(.09966-.03548)/1.09966^5/4446.4 = $36.73 * Cash: $0.9534 * 4239 / 4446.4 = $0.9534 * Total Value: 18.05+36.73+0.9534 = $55.73

Margin of Safety: 17.35%

• 1-46.06/55.73 = 17.35%

Relative Valuation

Since EV/Invested Capital has a high amount of explanatory power for most firms (R-squared of 51.3% in Europe), I would like to use it for valuing Novo-Nordisk. This is not an intrinsic valuation, but one based on how the market should price the asset if it were internally consistent with all other firms. The equation I am using was derived by Professor Aswath Damodaran, which can be found on his website.

EV/Invested Capital = 4.46 + 0.90 x G + 1.50 x ROIC - 0.05 x DFR

• ROIC: 17.21% * DFR (Debt/Firm Value Ratio): 21.12% * G (5Y Forward Revenue Growth): 1.39% * This is the analyst forward earnings growth estimate, since I did not have an estimate for forward revenue growth. * Invested Capital: $107968.59 million * R&D asset is added here.

Predicted Value: $114.6

• 4.46 + 0.90 x 0.0139 + 1.50 x 0.1721 - 0.05 x 0.2112 = 4.7201 x 107968.59 / 4446.4 = $114.6

Margin of Safety: 59.81%

• 1-46.06/114.6 = 59.81%

Ben Graham Intrinsic Value Formula

It always comes full circle to Benjamin Graham. His simple heuristic for intrinsic value is still quite potent and useful, and usually quite reflective of our value investor philosophy. Instead of the completely traditional formula, I will use Damodaran's slightly adjusted version to account for current interest rates. Finally, to get a grip on risk in a way that has nothing to do with beta, I will also present some accounting measures of risk.

Value = EPS x (8.5 + 2 x G) x (RFR / AAA)

• EPS: $4.639 * 20626.68 / 4446.4 = $4.639 * G: 4.149% * We will consider this as the annual rate for the next 5 years, as that is what the equation calls for. * Risk-Free Rate (RFR): 4.93% * AAA (AAA Corporate Bond Rate): 5.51%

No-Growth Value: $35.28

• 4.639x8.5x(4.93/5.51) = $35.28 * This implies a speculative element of $10.78 to the market price.

Estimated Value: $69.72

• 4.639x(8.5+2x4.149)x(4.93/5.51) = $69.72

Margin of Safety: 33.94%

• 1-46.06/69.72 = 39.94%

Accounting Risks

• Default Risk (Interest Coverage Ratio): 28.09x * 25043.68x(1-.258)/661.46 = 28.09x * Verdict: Quite good. Synthetic AAA rating. * Leverage (Market Debt/Equity): 26.78% * 54844/204801.184 = 26.78% * Verdict: Unsure. I would need to dig deeper to understand the optimal leverage for this firm. * Short-Term Liquidity: * Quick Ratio: 47.61% * (4239+11902)/33904 = 47.61% * Current Ratio: 79.97% * 27112/33904 = 79.97% * Verdict: Potentially dangerous if there is no option to refinance near-term debt. * Overall risks: Short-term liquidity is tight, but default risk is very low. With the implied margin of safety being as high as it is, I believe overall risk is very acceptable for the long-pull investor.