"UNLOCKING NOVO NORDISK'S MARKET POSITION: A STUDY OF COMPETITIVE ADVANTAGE AND ESTIMATION OF INTRINSIC VALUE USING FREE CASH FLOW TO EQUITY FRAMEWORK"

Abstract

Abstract

This study aims to analyze competitive advantage of Novo Nordisk and estimate its per share intrinsic value using discounted cash flow model. In this case study, competitive advantage was accesses by porter’s five forces analysis, VRIO framework, SWOT analysis and supplemented by financial metrics analysis i.e. ROIC and revenue growth for last 10 years (2015-2024). Free cash flow to equity (FCFE) model was used for estimation of intrinsic value followed by sensitivity and bull case & bear case analysis. The analysis demonstrates that Novo Nordisk enjoys sustainable competitive advantage in pharmaceutical industry driven by innovative and strong R&D culture, excellent intellectual property assets and pipeline, highly skilled workforce, brand reputation and leadership in diabetes and obesity market. Though there will be challenges with severe market competition and pricing pressure in future, Novo Nordisk and Eil Lilly collectively will retain 70% market share till 2031 enjoying their first comer effect with continuous innovation. Currently Novo Nordisk retains roughly 34% diabetic, half of insulin and GLP-1 drugs market. Intrinsic valuation by FCFE yields 75.22$ per share price implying 8% undervaluation compared to market price of 69.12 $ on May 5, 2025. Sensitivity analysis shows that model is most sensitive to assumptions of cost of equity. Case scenario yields values from 54.34 to 155.60$ reflecting uncertainty. Our results suggest that shares of Novo Nordisk are undervalued, offering an investment opportunity. Additionally, our base price (75.22$) lies near to bear case (54.34$) which indicates cautiousness in our assumptions as assumptions related to cost of equity, growth rate and terminal value are subjective in FCFE analysis.