Danish multinational pharmaceutical company Novo Nordisk (NVO 2.23%) is a quintessential blue-chip stock. Thanks to its very extensive portfolio of insulin drugs and diabetes-related products, it's held its own against companies like Eli Lilly, Abbott Labs, and Medtronic. Let's explore how adding this company to your portfolio today could offer a ton of upside, not just in 2021, but in the years to come.
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Earnings growth
Novo Nordisk reported Q1 earnings on May 4 along with a slew of other pharmaceutical companies including Bristol Myers Squibb, AbbVie, and Pfizer. Despite the pandemic-induced economic downturn, the company was able to increase earnings per share by 8% year over year to $0.88 a share, beating analysts' expectations of only $0.83 a share. The company also reported overall sales growth of 7% in the quarter year over year. This was driven by the company's four main business segments: insulin, obesity, BioPharm, and the drug GLP-1, a medication that stimulates insulin production in patients with type-1 diabetes. Novo Nordisk also has massive international exposure throughout the world, which was a huge benefit in the first quarter, when it saw 9% sales growth in its international operations.
The company also upgraded its financial guidance for the rest of 2021. Novo Nordisk projects 6% sales growth for 2021, up from 5% back in February. We also saw increases in free cash flow estimates for 2021, from $5.88 billion to $6.04 billion. Management reaffirmed its commitment to return $2.69 billion to shareholders; this is in addition to its existing share buyback program as well as its semi-annual dividend, which is usually paid out in August.
Progressing pipeline
Since its founding in 1923, Novo Nordisk's main goal has been in helping to defeat diabetes and other chronic diseases such as obesity and hemophilia. The company's pipeline is reflective of that and is making progress across multiple drug development projects.
The company has been doing a great deal of work within its diabetes pipeline. Its Ideal Pump Insulin and immunotherapy are currently in phase 1 clinical trials, and are expected to produce results by the third quarter of 2021. It also has a congestive heart failure drug, HFpEF, in phase 3 trials, as well as oral semaglutide, a type 2 diabetes drug that would compete with Eli Lilly's Jardiance. Oral semaglutide is heading to phase 3 trials during the latter half of 2021.
The company's biopharma and chronic disease pipelines have also made very solid progress. More than four different drugs are heading to phase 3 clinical trials over the course of the next six months.
Even with the very good news regarding its various pipelines, Novo Nordisk has really stepped up its M&A activity over the last year, making acquisitions to expand various parts of its business. In 2020, Novo Nordisk acquired two different companies: AstraZeneca's spin-off, Corvidia Therapeutics, and Emisphere Technologies. These two acquisitions were meant to expand the company's reach in both cardiovascular diseases as well as expand its portfolio of pill-based treatments for diabetes.
Novo Nordisk has also announced very bold goals through 2025, including winning a third of the global market share for diabetes treatments as well as doubling its current sales for obesity-related products.
A buy-and-hold play
I believe Novo Nordisk offers tremendous value to buy-and-hold investors who are thinking for the long term. The stock has been trending higher the past few months, and I think it will continue to do so as higher growth rates are priced in for revenue and earnings expansion. Though the company has struggled a bit to increase revenue at just an average 4.63% growth rate over the past five years, the company is expected to grow revenue in 2021 to $23.59 billion, a nearly 10% increase from $20.8 billion in 2020.
Additionally, the company is trading at a price-to-earnings (P/E) ratio of around 27. Historically speaking, we've seen Novo Nordisk trading around this P/E, and it should be noted that the market would value this company at that multiple, but that doesn't mean this stock will not grow into the future, as greater revenue and EPS growth will undoubtedly warrant a higher stock price. The company is also a dividend stock, currently offering a 1.8% dividend yield, a step up from what you get holding the SPDR S&P 500 ETF, which only offers a 1.34% yield.
I believe Novo Nordisk is a great quality company trading at a fair price and fair valuation. Priced for tremendous double-digit growth, this top-tier stock can possibly help you strengthen your portfolio and see great returns not just in 2021, but beyond.
