From the Economics of Value Creation to the Process of Measuring Value: The case of Novo Nordisk S/A

Rafael Acre Pacheco

Student thesis: Master thesis


The objective of this thesis is to estimate the intrinsic value of Novo Nordisk’s stock as of April 30th 2015, by applying the fundamental analysis and the enterprise discounted free cash flow model. The main findings from the fundamental analysis show that the markets where Novo Nordisk operates are expected to grow, especially in volume, as the global population grows, ages, and urbanizes. Contrarily, revenue growth in value will be constrained by changes in the regulatory environment, and increasing competition, especially from generics. Based on this scenario, the drivers of Novo Nordisk’s organic revenue growth will be based on market penetration, rather than on a favorable price development. Despite the challenges in the external environment, Novo Nordisk grew organically +10 percent on average in the last five years. This is a result of the company’s strong business focus on few therapeutic areas, which are supported by an integrated approach to business strategy. Additionally, Novo Nordisk also presented the best underlying operating performance from 2010 to 2014, with ROIC above 28 percent in all years analyzed. None of its competitors managed to achieve that mark. Based on the enterprise discounted free cash model proposed by Koller et al. (2010), Novo Nordisk’s intrinsic value was estimated at 367,49 DKK per share as of April 30th 2015. This value is 3 percent lower than the value of Novo Nordisk’s stocks traded in the market at that day, which was at 378,70 DKK per share. The sensitivity analysis showed that the observed value is very sensitive to even small changes in revenue growth and WACC. Moreover, the multiples analysis also supports the findings above. In conclusion, Novo Nordisk's stock is assessed as an investment where the underlying risk fairly reflects earnings potential.

EducationsMSc in Advanced Economics and Finance, (Graduate Programme) Final Thesis
Publication date2015
Number of pages140