Novo Nordisk

The Trump government has rejected the proposal to include anti-obesity drugs under the governmental health insurance coverage of Medicare (US government funded health insurance program for the elderlies, i.e. >65 years old) and Medicaid (for the low-income families). The proposal was introduced by the Biden government in its final days. Having said that, the government has left open the possibility of reconsidering this decision after further reviewing potential benefits and relevant costs of the new generation weight-loss drugs.

This is bad news as an inclusion of anti-obesity medicines under government-funded insurance would have extended their coverage for 3.4m US citizens under Medicare and another 4m with Medicaid. This would have meant a shot in the arm for the already burgeoning demand for the weight-loss drugs, and at a same time a meaningful sentiment booster for the likes of Novo Nordisk, whose share price has been under severe pressure for the last 10 months.

Another blow for Novo Nordisk. The expert truly believes we went from excessive valuation to excessive undervaluation. Indeed, at current price, Novo Nordisk trades at a PE 2025 of 15.1 x down to 10.8x for 2027 and the company’s dividend yields 3.2% this year and 4.2% in 2027.

While the US remains a key market for obesity, the ability to grow outside the US is massive. Actually, it is possible that Novo’s competitive position outside the US be improved if Eli Lily’s products are impacted by retaliatory tariffs in other geographies. In all, our expert believes that  Novo offers an attractive risk profile. The only issue is the lack of identified catalyst that may reverse the sentiment on the name over the short term.