Novo Nordisk will cut 9,000 employees. Why do analysts believe the stock is up 60%?

Danish pharmaceutical company Novo Nordisk, known for Ozempic and Wegovy, announced large-scale layoffs and another revision of profit forecasts. However, investors reacted positively: quotes rose by more than 4%. Analysts believe that cost savings and concentration of resources on key areas can return the company's position in the market of drugs to combat excess weight. According to one of the analysts, the growth potential of the company's securities reaches almost 60%.

Danish Ozempic and Wegovy maker Novo Nordisk will cut 9,000 jobs globally (that's 11.5% of its workforce) in an effort to save 8 billion kroner (about $1.3 billion) by the end of 2026, according to the company's website. This includes plans to remove 5,000 jobs in Denmark itself, where mass layoffs are extremely rare, Bloomberg writes. Novo wants to channel the freed-up funds into key areas with the greatest prospects - diabetes and obesity.

The company expects to spend 9 billion kronor on restructuring in the third quarter. Because of this, Novo lowered its forecast for annual operating profit growth to 4-10% (at a fixed exchange rate) for the third time this year. Back in February, it had forecast an increase of 19-27%. In contrast, Novo expects to save 1 billion kronor ($157 million) in the fourth quarter.

Novo CEO Mike Dustdar, who took over the company last month, has already halted hiring for non-urgent positions and withdrawn job offers for new hires who have yet to start their duties.

"Sometimes the hardest decisions turn out to be the right ones for the future we are building, and this is a necessary step for Novo Nordisk's long-term success," Dustdar wrote on LinkedIn.

Novo Nordisk shares were down almost 3% at the opening of trading in Copenhagen, but later reversed and at the peak added 4.4%. Novo's shares were down about 0.2% in New York premarket. The restructuring plan should generate about $1.26 billion in annual savings as the company struggles to compete in the market for weight-loss drugs, Reuters explained. The company's stock has lost 44% since the start of the year, although it was previously the most expensive in Europe thanks to a frenzy of demand for weight-loss products.

- "While we applaud Novo's actions to reduce complexity and increase business flexibility, the restructuring program is likely to lead to further questions about the company's growth prospects," JPMorgan analyst Richard Vosser wrote in a note. It was quoted by Bloomberg.

- "The austerity plan is tough, natural and also much needed," Nordnet analyst Per Hansen said, adding that Dustdar's restructuring efforts are key to the company's future, Reuters wrote.

- Sydbank analyst Seren Lontoft Hansen called the scale of the layoffs "unexpected." "It just shows that the company is moving from a period of rapid growth and active hiring to a new reality of more moderate development and is now adjusting to it," he said.

- In addition, several analysts updated their recommendations and revised their target prices. Thus, Bernstein raised its recommendation on Novo Nordisk shares from "hold" (market perform) to "buy" (outperform), citing the continued growth potential in the segment of obesity drugs. At the same time, the target price was lowered from DKK 620 to DKK 540. This implies an upside of almost 60% for the stock. Bernstein estimates that Novo Nordisk's sales will grow faster than the market as a whole.

- Brokerage company Oddo revised its target price on Novo Nordisk shares, reducing it from 465 to 425 Danish kroner. At the same time, the broker maintained neutral recommendation on the company's securities. Its assessment assumes growth of the company's shares by 25.4%.

- Handelsbanken has reiterated a "buy" recommendation on shares of Danish pharmaceutical giant Novo Nordisk following news of layoffs. In a research note, the bank emphasized that Novo Nordisk remains one of the top investment ideas in the sector.

- JPMorgan also reiterated a "buy" recommendation on Novo Nordisk shares, keeping its target price at DKK 500. Its valuation implies a 47.5% upside for the stock.

Novo Nordisk has been aggressively scaling up in recent years to keep up with soaring demand for its obesity drugs. That has led to a more complex structure and rising costs, which the measures announced Wednesday are designed to address, the WSJ noted. But now the company, which employs 78,400 people worldwide, faces another challenge - slowing sales of Wegovy and anti-diabetic drug Ozempic, especially in the U.S., Reuters reports.

Although the company pioneered this market with Ozempic and Wegovy, its position began to weaken last year when the experimental drug CagriSema showed less weight-loss effect than Novo had hoped. Now the company is pinning its hopes on the tablet form of Wegovy, the agency writes.

The main problem is that Novo is trying to regain lost positions after it lost its leadership in the US market of obesity drugs to US Eli Lilly. In addition, the Danish manufacturer is finding it increasingly difficult to defend itself against cheaper analogs of its drugs produced by American compounding pharmacies - small pharmaceutical companies that independently mix active ingredients to produce copies of expensive drugs.

Novo Nordisk has no tradition of mass layoffs, and for years it has had a reputation as an employer with a bloated workforce. In 2024, Novo had 1,835 employees for every $1 billion in revenue, while its competitor Eli Lilly achieved the same result with just 1,044 employees, Bloomberg writes.

In July, investors crashed the pharma company's capitalization by $70 billion after warning of lower profits. Investors also reacted to the appointment of a new head of Novo: the company chose an internal candidate rather than an external one, as analysts had expected.

This article was AI-translated and verified by a human editor