Upon examining the fundamentals of Canada-based Tilray Brands, Inc. (TLRY) and Denmark-based Novo Nordisk A/S (NVO) in this article, it becomes evident that NVO possesses greater growth potential. Prior to delving into the reasons behind my optimism for NVO, let us explore the outlook for the pharma industry.
With the global population expanding and individuals encountering novel health challenges, the pharmaceutical sector reaps the rewards. Pharmaceutical market revenue is projected to reach $1.16 trillion in 2023.
Moreover, the pharmaceutical industry is undergoing a significant transformation fueled by the widespread adoption of advanced digital platforms, big data analytics, and Artificial Intelligence (AI). Both TLRY and NVO are expected to thrive in the upcoming months.
TLRY has declined 45.2% over the past year, while NVO returned 46.5%. Also, TLRY’s 52% decline over the past six months is significantly lower than NVO’s 18.7% returns. Moreover, in terms of year-to-date performance, NVO is the clear winner with 16.5% gains versus TLRY’s 36.4% decline.
Given below are the reasons why I think NVO is a better pick:
Latest Developments
On June 5, 2023, NVO and BIOCORP Production SA, a French company specializing in the design, development, and manufacturing of innovative medical devices and delivery systems, announced that NVO is in exclusive negotiations to acquire a controlling stake in BIOCORP, with a subsequent mandatory simplified tender offer for the remaining shares. The offer price is set at EUR35 ($37.76) per share in cash, totaling approximately EUR154 million ($166.16 million) in equity value.
On May 24, NVO and Life Edit Therapeutics, Inc., an ElevateBio company focused on next-generation gene editing technologies and therapeutics, announced a research and development collaboration to discover and develop gene-editing therapies against a select set of therapeutic targets.
On the other hand, on May 25, TLRY announced that it had obtained approval from Italy's Ministry of Health to distribute three new medical cannabis compounds through its subsidiary FL Group. These compounds will be supplied to pharmacies across Italy, expanding TLRY’s pharmaceutical-grade cannabis offerings.
Additionally, TLRY has partnered with Pharmaidea, a Petrone Group company, to educate over 12,000 Italian pharmacies on the benefits of medical cannabis and patient care.
Recent Financial Results
During the fiscal first quarter that ended March 31, 2023, NVO’s net sales increased 26.9% year-over-year to Kr53.37 billion ($7.72 billion), while its operating profit came in at Kr17.09 billion ($2.47 billion), up 30.6% year-over-year. The company’s net profit came in at Kr13.59 billion ($1.97 billion), and EPS amounted Kr8.78, representing 39.4% and 41.2% increases year-over-year, respectively.
TLRY’s net revenue decreased 4.1% year-over-year to $145.59 million in the fiscal 2023 third quarter that ended February 28. Its operating expenses increased significantly from the year-ago value to $1.20 billion. Also, the company reported an adjusted net loss and adjusted loss per share of $23.42 million and $0.04, respectively.
Stable Dividend-Paying History
NVO’s forward annual dividend of $2.36 translates to a dividend yield of 1.50% on the current price level. It has paid dividends for 40 consecutive years. Over the last three years, NVO’s dividend payouts have grown at 12.6% CAGR. The company’s four-year average dividend yield is 1.71%.
However, TLRY does not pay any dividends.
Past and Expected Financial Performance
NVO’s revenue and EPS grew at CAGRs of 14.2% and 16.5%, respectively, over the past three years. Analysts expect NVO’s revenue to increase 37% in the current quarter, 35.3% in the next quarter, and 23% in the current year. The company’s EPS is expected to grow 57.9% in the current quarter, 60.6% in the next quarter, and 39.1% in the current year.
On the other hand, TLRY’s revenue grew at a CAGR of 16% over the past three years. Analysts expect the company’s revenue to rise marginally in the current quarter, 4% in the next quarter, and decrease by 4.8% in the current year. The company’s EPS is expected to grow 36.4% in the current quarter, 62.5% in the next quarter, and 11.3% in the current year.
Profitability
NVO is more profitable, with a gross profit and EBIT margins of 84.22% and 43.27%, compared to TLRY’s 12.79% and negative 42.11%, respectively.
Furthermore, NVO’s ROCE, ROTC, and ROTA of 83.50%, 51.59%, and 24.45% compare with TLRY’s negative 44.63%, 3.34%, and 40.95%, respectively.
Valuation
In terms of forward EV/Sales, NVO is currently trading at 11.02x, higher than TLRY, which is currently trading at 1.88x. Moreover, NVO’s forward EV/EBITDA ratio of 23.48 is slightly higher than TLRY’s 22.30.
POWR Ratings
NVO has an overall rating of A, which equates to a Strong Buy in our proprietary POWR Ratings system. TLRY, on the other hand, has an overall rating of F, which translates to a Strong Sell. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories.
NVO has an A grade for Quality. Its trailing-12-month EBIT and EBITDA margins of 43.27% and 46.13% are significantly higher than the industry averages of negative 1.58% and positive 3.21%.
However, TLRY has a grade of D for Quality. Its trailing-12-month negative EBIT and EBITDA margins of 42.11% and 18.31% are lower than the industry averages.
NVO has a grade of B for Stability, in sync with the company’s 24-month beta of 0.25. TLRY, on the other hand, has a grade of D for Stability, which is justified by its 24-month of 1.74.
NVO has a grade of B for Growth, consistent with its amazing financial performance. TLRY, on the other hand, has a Growth grade of C, consistent with the company’s mixed financial performance.
In the 169-stock Medical – Pharmaceuticals industry, NVO is ranked #3, while TLRY is ranked #165.
Beyond what we’ve stated above, we have also rated both stocks for Stability, Momentum, Value, and Sentiment. Click here to view NVO ratings. Get all TLRY ratings here.
Winner
The pharma industry’s resilience during economic uncertainty offers an attractive investment opportunity.
While NVO and TLRY are poised to flourish and capitalize on the industry’s tailwinds, NVO emerges as a more promising pick due to its strong financial performance, strategic partnerships, profitability, and growth prospects.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Medical-Pharmaceutical industry here.
What To Do Next?
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NVO shares were trading at $159.02 per share on Wednesday morning, up $1.39 (+0.88%). Year-to-date, NVO has gained 18.17%, versus a 14.99% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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