Morgan Stanley downgrades Novo Nordisk stock rating on growth concerns

Morgan Stanley has reduced its rating on Novo Nordisk stock, marking a shift in outlook due to concerns over the company's growth prospects. Analyst Thibault Boutherin cited risks associated with potential waning mid-term growth, compounded by the looming expiration of key patents post-2030. The stock's current valuation at $44.01, coupled with a price target of $40.00, signals a potential underperformance relative to its intrinsic value.

Despite this, InvestingPro data suggests Novo Nordisk could still be undervalued, prompting investors to monitor the stock closely on their Most Undervalued stocks list. Forecasts for the upcoming years anticipate sluggish revenue and EBIT growth of 2-3% in 2027, with a more modest projected compound annual growth rate (CAGR) of 4% for the period between 2027 and 2030.

This projection starkly contrasts with the company’s current robust performance, registering a 5.6% year-over-year revenue increase. A significant concern lies in Novo Nordisk's reliance on semaglutide, which is projected to constitute 75% of its sales by 2026. The patent expiration of this blockbuster drug is slated to impact the company significantly from the early-2030s in Europe and the U.S., where it is expected to maintain 59% market share even post-patent expiration.

The firm’s proprietary surveys highlight a concerning trend for Novo Nordisk, revealing a shift in market share towards competitors like Eli Lilly's Zepbound, Mounjaro, and Foundayo, as well as retatrutide, which is expected to enter the market in 2027. Recent U.S. prescription data indicates a slowdown in Wegovy growth after a promising first half of 2026, with Eli Lilly's Zepbound gaining considerable traction, especially within Medicare patient populations since the Bridge program's inception.

Novo Nordisk's recent quarterly earnings report underscored its resilience, delivering adjusted earnings per share of $0.9527 on revenue of $12.1 billion, surpassing analyst expectations of $0.7815 per share and $10.94 billion in sales. This success can be attributed to the rising demand for GLP-1 medicines, particularly in obesity care, and the rapid rollout of Wegovy.

Additionally, Novo Nordisk made substantial progress with China's drug regulator approving the sale of the oral version of Wegovy, marking a pivotal moment in the company's strategy to penetrate China's vast pharmaceutical market. Furthermore, the STEP Young phase 3 trial demonstrated encouraging results, with 40.4% of children aged 6 to under 12 with obesity achieving a lower body mass index after receiving semaglutide.

However, these developments paint a picture of a company navigating a complex landscape, blending recent achievements with mounting challenges that could shape its trajectory in the foreseeable future.