As Europe’s economy shows signs of recovery amid ongoing challenges, fundamentally sound companies like Novo Nordisk A/S (NVO), SAP SE (SAP), and Novartis AG (NVS) could offer strong investment potential as they benefit from broader macroeconomic trends.
The European Central Bank (ECB) recently lowered its deposit facility rate for the second time this year in response to slowing inflation. Inflation in the eurozone dropped to 2.2% in August, edging closer to the ECB’s 2% target. However, the continent’s economic recovery remains tepid, with GDP growth forecast at 0.8% this year and slight improvements expected through 2026.
Economic growth in the eurozone saw an uptick in the second quarter of 2024, with GDP increasing by 0.3%, supported by rising employment and steady consumer demand. Moreover, employment rates have also grown by 0.2% across the euro area, further indicating that the labor market is stabilizing, providing a foundation for continued economic expansion.
While financial markets expect further rate cuts from the ECB, signaling some uncertainty in the recovery’s pace, Europe’s economic fundamentals remain sound enough to support gradual improvement.
Given this backdrop, companies like NVO, SAP, and NVS seem well-positioned to benefit from the continent’s improving economic landscape. Let’s delve into the fundamental aspects of these stocks in detail:
Novo Nordisk A/S (NVO)
Headquartered in Bagsvaerd, Denmark, NVO is a global healthcare company engaged in discovering, developing, manufacturing, and marketing pharmaceutical products. It operates through two business segments: Diabetes and Obesity care; and Biopharm.
On June 24, NVO announced a $4.1 billion investment to expand US manufacturing capacity by building a second fill and finishing manufacturing facility in Clayton, North Carolina. This will grow the facility’s ability to produce current and future injectable treatments for people with obesity and other serious chronic diseases.
For the first half of the year that ended June 30, 2024, NVO’s net sales increased 23.9% year-over-year to Kr133.41 billion ($19.87 billion), while its operating profit came in at Kr57.78 billion ($8.61 billion) up 18.2% year-over-year. The company’s net profit came in at Kr45.46 billion ($6.77 billion) and Kr10.17 per share, representing 15.8% and 16.8% increases year-over-year, respectively.
Street expects NVO’s revenue and EPS for the fiscal third quarter (ending September 2024) to increase 30% and 21.3% year-over-year to $10.87 billion and $0.86, respectively. Moreover, it beat the revenue estimates in each of the trailing four quarters, which is promising.
Over the past year, the stock has gained 43.8%, closing the last trading session at $136.90.
NVO’s promising fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
It has an A grade for Quality and is ranked #24 out of 161 stocks in the Medical - Pharmaceuticals industry. Click here to see the additional ratings for NVO (Growth, Value, Momentum, Stability, and Sentiment).
SAP SE (SAP)
SAP is a Germany-based company that offers enterprise application software. It operates through three segments: Applications, Technology & Services; the SAP Business Network; and the Customer Experience.
On September 12, the company completed its acquisition of WalkMe Ltd. (WKME) for $1.5 billion in an all-cash deal. WKME’s digital adoption platform will enhance SAP’s Business Transformation Management portfolio, including SAP Signavio and SAP LeanIX, by improving workflow execution and user experience. Its AI technology will also power SAP’s Joule copilot, offering context-aware assistance to boost workflow productivity.
SAP’s total revenue for the second quarter (ended June 30, 2024) increased 8.9% year-over-year to €16.33 billion ($18.15 billion). Its gross profit grew 10.1% from the year-ago value to €11.78 billion ($13.09 billion).
The company’s cash inflow from operating activities amounted to €4.29 billion ($4.78 billion), representing a 35.9% increase from the same period last year. Also, its free cash flow stood at €3.78 billion ($4.21 billion), up 47.9% year-over-year.
Analysts expect SAP’s revenue for the fourth quarter (ending December 2024) to grow 9.1% year-over-year to $10.02 billion, while its EPS for the same period is expected to increase 2.9% from the prior year to $1.57. Also, it topped the revenue estimates in three of the trailing four quarters.
The stock has gained 65.3% over the past year to close the last trading session at $223.60.
SAP’s bright prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
It also has a B grade for Stability, Sentiment, and Quality. Out of 126 stocks in the Software – Application industry, SAP is ranked #27. Click here to see SAP’s Growth, Value, and Momentum ratings.
Novartis AG (NVS)
Headquartered in Basel, Switzerland, NVS researches, develops, manufactures, and markets healthcare products worldwide through two segments: Innovative Medicines and Sandoz.
On August 28, the company’s subsidiary Novartis Pharma AG entered into a global licensing agreement with Lindy Biosciences to access its innovative microglassification technology for biologic drugs. This partnership grants NVS exclusive global rights across multiple biologic targets, focusing on developing high-concentration, self-administered treatments.
The collaboration aims to improve patient outcomes and compliance by enabling at-home treatments. Further, it strengthens the company’s position in innovative drug delivery and enhances its ability to offer patient-friendly solutions.
In the fiscal second quarter that ended June 30, 2024, NVS’ net sales increased 9.4% year-over-year to $12.51 billion. Its operating income from continuing operations grew 43% from the year-ago value to $4.01 billion. The company’s net income and EPS came in at $3.25 billion and $1.60, representing a 40.1% and 44.1% year-over-year improvement, respectively. In addition, its free cash flow stood at $4.62 billion, up 40.9% year-over-year.
The consensus EPS estimate of $1.96 for the fiscal third quarter (ending September 2024) represents a 12.5% improvement year-over-year. The consensus revenue estimate of $12.52 billion for the ongoing quarter represents a 6.3% increase from last year. The company has an impressive surprise history; it surpassed the consensus revenue estimates in three of the trailing four quarters.
Shares of NVS have gained 20.1% over the past nine months and 15.8% year-to-date to close the last trading session at $116.95.
It is no surprise that NVS has an overall rating of A, equating to a Strong Buy in our POWR Ratings system. It has a B grade for Growth, Value, Stability, and Quality. Within the Medical - Pharmaceuticals industry, it is ranked #3 out of 161 stocks.
In addition to the POWR Rating grades I’ve just highlighted, you can see NVS’ Momentum and Sentiment ratings here.
What To Do Next?
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NVO shares were trading at $132.76 per share on Tuesday afternoon, down $4.14 (-3.02%). Year-to-date, NVO has gained 29.33%, versus a 19.10% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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