Novo Nordisk (NVO) recently gave a bullish outlook for 2011, prompting analysts to revise their estimates higher. It is a Zacks #2 Rank (Buy) stock.
Analysts expect strong double-digit earnings growth from NVO over the next two years. The company also has a strong financial profile and has been rewarding shareholders with stock buybacks and dividend increases. It currently yields 1.1%.
Company Description
Novo Nordisk is a leader in insulin and diabetes care and also manufactures and markets a variety of other pharmaceutical products.
It is headquartered in Bagsvaerd, Denmark and has a market cap of $72.9 billion.
Fourth Quarter Results
The company reported its results for the fourth quarter of 2010 on February 2. Sales increased 23% over the same quarter in 2009 driven by a 28% increase in Diabetes care products.
Sales were strong across all geographic segments with Europe being its slowest region (6% increase). North America, which represents approximately 36% of total sales, was the strongest with a 39% increase.
Meanwhile, gross profit expanded from 79.8% of sales to a whopping 80.9%, while operating profit jumped 35%.
Earnings per share of $1.26 missed the Zacks Consensus Estimate by 7 cents. It was a 74% increase year-over-year, however.
Outlook
The company expects 8-10% sales growth in 2011 due to continued market penetration. Operating profit is expected to grow 15%.
The Zacks Consensus Estimate for 2011 is $5.31, representing 17% growth over 2010 EPS. The 2012 estimate is currently $6.17, equating to 16% EPS growth.
Analysts have been steadily raising their estimates over the last several months, as seen in the company’s Price & Consensus chart:
It is a Zacks #2 Rank (Buy) stock.
Returning Value to Shareholders
Novo Nordisk generates strong free cash flow and has a healthy balance sheet. The company has been returning much of this cash to shareholders through dividends increases and stock buybacks.
The company has hiked its dividend for 14 straight years and recently raised it by 33%. It currently yields 1.1%.
The company also bought back over 19.5 million shares in 2010, or approximately 4% of its shares outstanding.
Shares are trading at 23.8x forward earnings, a premium to the industry average of 15.2x. However, when you factor in the company’s 5-year expected growth rate of 16.7%, its PEG ratio is a reasonable 1.4.
Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.
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