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Welcome to The Intermediate Portfolio.

    A Quick Welcome

    The intermediate portfolio is Carnivore Trading’s way of putting a handful of high-quality stock picks in your hands and, in turn, putting money in your pockets. Each of these power stocks has been hand-selected by Trader Z for the purpose of long-term holding and growth. Throughout the year, we will continue to add and alert you of new stocks and any changes we might make! As always with Carnivore, the final choice belongs to you. Below the portfolio is a detailed explanation of why we like the stocks, we hope you like them too.

    Intermediate Portfolio

    Individual Stock Breakdown

    zzz
    Amazon

    Consumer Discretionary | NASDAQ: AMZN

    Why We Like It:

    Amazon.com, Inc. (NASDAQ:AMZN) is the leader of both e-commerce and the public cloud, with a clear runway for growth and improved profitability. The company has built a global logistics network to support its growth and has diversified its operations to several sectors, including financial services, which provides a good opportunity for growth going forward.  While they are best known for their retail e-commerce business, we think investors are missing the true opportunity within the company. 

    The real gem of a business within the company Carnivores is AWS.  Amazon Web Services AWS is the world’s most comprehensive and broadly adopted cloud, offering over 200 fully featured services from data centers globally. Millions of customers—including the fastest-growing startups, largest enterprises, and leading government agencies—are using AWS to lower costs, become more agile, and innovate faster.  Over the past decade, Amazon has invested over $114 billion in developing AWS, establishing a significant barrier to entry for potential competitors. According to IDC data, global spending on public cloud services was forecasted to reach $1.35 trillion in 2027, which provides plenty of room for the growth of AWS. AWS's sales could potentially reach $200 billion within the next 5-7 years. 

    AWS has significantly more services, and more features within those services, than any other cloud provider–from infrastructure technologies like compute, storage, and databases–to emerging technologies, such as machine learning and artificial intelligence, data lakes and analytics, and Internet of Things. AWS also has the deepest functionality within those services. Recently AWS has demonstrated its adaptability and ambitions to match Microsoft Azure (MSFT) while fending off Google Cloud's (GOOGL) challenges. 

    Microsoft's partnership with OpenAI has given it the advantage of leveraging a market-leading proprietary LLM. However, AWS has indicated that it's committed to competing and also has custom AI chips designed to help its customers stay on AWS's infrastructure. Furthermore, as the most significant IaaS player in the market, Amazon continues to generate substantial scale efficiencies in its deployment, providing Amazon with sustainable competitive advantages against its smaller peers.  AWS is designed to be the most flexible and secure cloud computing environment available today. The core infrastructure is built to satisfy the security requirements for the military, global banks, and other high-sensitivity organizations. This is backed by a deep set of cloud security tools, with over 300 security, compliance, and governance services and features, as well as support for 143 security standards and compliance certifications. 

    With AWS poised for growth, North America's operating income surpassing expectations, the international business nearing break-even, and steady double-digit revenue growth, Amazon remains a standout in terms of earnings growth prospects as we enter 2024.  In the long term, AWS's operating margin could exceed 40%, supported by the scalable nature of its business. The operating margin rebounded to 30% in the third quarter after five consecutive weaker quarters. 

    AMZN ended the quarter with $64 billion of cash versus $61.1 billion of debt, representing a strong balance sheet. Looking forward, management has guided for up to 12% YoY revenue growth to $167 billion with up to $11 billion in operating income. Consensus estimates call for $166 billion in revenue and $0.78 in EPS. The fact that the company's true underlying earnings power is much more significant than what the current numbers portray also makes current valuation ratios extremely misleading. How many times have you heard that Amazon is expensive because it trades at a given valuation multiple? Amazon has a culture of continuous reinvestment and reinvention, meaning that it's unlikely that we'll see the company's true earnings power anytime soon.

    nvidia
    Nvidia Corp

    Healthcare | NASDAQ: NVDA

    Why We Like It:

    Nvidia Corporation is potentially the most important technology company of the 21st century. Why? Simple, Carnivores, they are the dominant supplier of artificial intelligence hardware and software.  It is a software and fabless company which designs graphics processing units, application programming interface for data science and high-performance computing as well as system on a chip-units for the mobile computing and automotive market. Its professional line of GPUs is used in workstations for applications in such fields as architecture, engineering and construction, media and entertainment, automotive, scientific research, and manufacturing design. 

    In addition to GPU manufacturing, Nvidia provides an API called CUDA that allows the creation of massively parallel programs which utilize GPUs. They are deployed in supercomputing sites around the world. More recently, it has moved into the mobile computing market, where it produces Tegra mobile processors for smartphones and tablets as well as vehicle navigation and entertainment systems. Its competitors include AMD, Intel, Qualcomm and AI accelerator companies such as Cerebras and Graphcore.  It will be difficult for competitors to challenge Nvidia meaningfully over the upcoming 1-2 years, leaving the company as the dominant supplier of the rapidly growing accelerated computing market. 

    Nvidia has been positioning itself for the era of accelerated computing for more than a decade now. The company’s 2010 GTC (GPU Technology Conference) centered around the idea of the use of GPUs for general purpose computing with a special focus on supercomputers. Nvidia recognized early that the future of computing would center around GPUs and not CPUs with the growing need for accelerated computing.  Based on these visions, Nvidia began to build out its GPU portfolio for accelerated computing many years ago, ensuring a significant first-mover advantage. The company’s efforts manifested in the launch of the Ampere and Hopper GPU microarchitectures in recent years, with Ampere officially introduced in May 2020, and Hopper in March 2022. The world’s most powerful A100, H100, and H200 GPUs based on these architectures have dominated the exploding data center GPU market in 2023, which has been fueled by emerging AI and ML initiatives. These GPUs ensured a ~90% market share for Nvidia during the year. 

    Riding the wave of success from its GPUs, Nvidia managed to establish a multibillion-dollar networking business in 2023, as well (more on that below). Besides the state-of-the-art GPUs and networking solutions (hardware layer), which offer best-in-class performance for large language model training and interference, Nvidia has another key competitive advantage, namely CUDA (Compute Unified Device Architecture), the company’s proprietary programming model for utilizing its GPUs (software layer). To efficiently take advantage of Nvidia GPUs’ parallel processing capabilities, developers need to access these through a GPU programming platform. Doing this through general, open models like OpenCL is a more time-consuming and developer-intensive process than simply using CUDA, which provides low-level hardware access sparing complex details for developers thanks to the use of straightforward APIs. 

     API stands for Application Programming Interface, and it contains a set of rules for how different software components can interact with each other. The use of well-defined APIs drastically simplifies the process of using Nvidia’s GPUs for accelerated computing tasks. Nvidia has invested a lot into creating specific CUDA libraries for specific tasks to further improve the developer experience. CUDA was initially released in 2007, 16 years ago (!), so a lot of R&D expenses went into creating a seamless experience for utilizing Nvidia GPUs since then. Currently, CUDA is in the heart of the AI software ecosystem, just like A100, H100, and H200 GPUs in the heart of the hardware ecosystem. Most academic papers on AI used CUDA acceleration when experimenting with GPUs (which were Nvidia GPUs of course), and most enterprises use CUDA when developing their AI-powered co-pilots. 

    Even if competitors manage to come up with viable GPU alternatives, building up a similar software ecosystem like CUDA could take several years. If you’re interested in CUDA’s dominance and the possible threats to it in more detail, I suggest reading the following article from Medium: Nvidia’s CUDA Monopoly.  When making investment decisions into AI infrastructure, CFOs and CTOs must factor in developer costs and the level of support for the given hardware and software infrastructure as well, where Nvidia stands out from the crowd. Even if purchasing Nvidia GPUs comes with a hefty price tag on the one hand, joining its ecosystem has many cost advantages on the other hand. These improve the total cost of operation materially, which is a strong sales benefit. For now, the world has settled for the Nvidia ecosystem, I doubt that many corporations would take the risk and leave a well-proven solution behind.  

    During the first quarter of 2023, NVDA beat on both the top and bottom lines, but these weren't massive beats (for instance, the consensus EPS estimates coming into the quarter was $0.92 and NVDA posted $1.09 in earnings).  The guidance here is what caught the market off guard and sparked NVDA's 2023 rally.  NVDA called for Q2 sales of ~$11b, which was roughly 50% above analyst consensus. Companies post beat and raise quarters all of the time, but rarely have I seen the market so wrong about guidance from mega-cap companies like this. That bullish guidance caused shares to jump by more than 25% in the afterhours trade. During the second quarter, NVDA posted EPS of $2.70, which was way above the consensus estimate of $2.09 coming into the print. Sales came in ahead of that amazing Q1 guidance, $13.51b. By then, the analyst consensus had caught up to NVDA's Q1 guidance at $11.22b. However, it turns out that the Q1 number was a low bar for the company. Its $2b+ beat represented y/y revenue growth in the triple digits (and 88% on a sequential basis). And, most impressive of all, NVDA's Q2 net income jumped from $656m to $6.19b (on a y/y basis). 

    Q2 is when NVDA's CEO, Jensen Huang, mentioned that the transition from existing data center infrastructure to data centers capable of generative AI is a trillion-dollar opportunity. This statement caught the market's attention in a big way and kept the sentiment surrounding shares positive. During Q3, EPS came in at $4.02 (above consensus estimates of $3.37). NVDA's sales totaled $18.1b, tripling the $5.9b that it posted a year prior. What I found most interesting about the quarter is that not only did NVDA post 206% sales growth, but its gross margin expanded from 53.9% to 74.0%.  Honestly, I don't think I've ever seen anything like this. NVDA's net income was $9.24b during Q3, up from $680m during the same quarter from the prior year. To me, NVDA's Q3 report was just as impressive as its prior two (if not more so); however, the stock hasn't moved much since.

    lly
    Eli Lilly And Company

    Healthcare | NYSE: LLY

    Why We Like It:

    Eli Lilly (NYSE:LLY) is the largest drug company in the world.  LLY has become the key beneficiary of the rally in weight loss drug stocks (along with NVO), which has gained momentum over the past year. Specifically, LLY has appreciated almost 5x in value over the past five years. The upsurge picked up pace in 2023 with almost a two-fold return. The results indicate how LLY has shed its old reputation as the laggard of the industry due to inherent sensitivities to drug patent cliffs and an inefficient R&D spend management. The company is well-positioned to ramp up on market share gains with its obesity and diabetes indication drugs, which are currently one of the fastest growing segments. Currently, Trulicity and Mounjaro – two of LLY’s blockbusters in the segment – represent close to a third (3Q23 combined sales: $3.1 billion) of company revenues (3Q23: $9.5 billion). And that is not even counting the recent go-to-market of Zepbound, indicated for obesity, which received FDA approval in early November. LLY also has a few other alternatives in its internal pipeline that are expected to receive regulatory approval near mid-decade. This is likely to further reinforce its momentum in the high-growth drug segment, and extend the recent success that has been propelling the stock’s upsurge. 

    Lilly has opportunity outside of diabetes and obesity.  These include non-obesity products in the pipeline aimed at other high demand drug segments, such as oncology and neuroscience – particularly in treating Alzheimer’s. The ongoing endeavor is further corroborated by LLY’s recent string of small acquisitions, which include forays in antibody-drug conjugates (“ADC”) for treating urothelial cancer (Emergence Therapeutics), and immunology (DICE Therapeutics). Taken together, we believe LLY is well positioned to take on the inherent sensitivities facing big pharma. 

    LLY’s diversified portfolio in both high-growth and emerging drug segments reinforces its strength in overcoming risks of patent cliffs/LOEs, fluctuations in drug pricing, and intensifying competition. Although the stock now trades at a “great, but expensive” narrative, we believe it remains well positioned for a sustained uptrend underpinned by a quality growth trajectory ahead. Where will this growth come from? Diabetes, Carnivores.  Diabetes represents one of the most common chronic illnesses in the world, and is often linked with other health complications such as heart and kidney problems. Obesity is another closely linked epidemic, with the cohort facing “7x greater risks” of diabetes compared to their healthier-weight counterparts. 

    The recent sensation on the use of the GLP-1 (or “glucagon-like peptide-1”) class of drugs in treating type 2 diabetes has received incremental demand from the weight loss community. And the proposition is simple. GLP-1 drugs work by increasing insulin release in the body, which helps to stabilize blood sugar levels, while also limiting appetite, by slowing the digestion process. Common GLP-1 drugs currently available in the market include semaglutide (e.g. Novo Nordisk's (NVO) Ozempic / Wegovy), tirzepatide (e.g., LLY’s Mounjaro / Zepbound), and dulaglutide (e.g., LLY’s Trulicity), which are typically injectables. There are also currently oral alternatives in the works, including LLY’s Orforglipron and rival Pfizer’s (PFE) danuglipron, which are targeting indications for type 2 diabetes, and weight loss. NVO is currently one of the first to have obtained FDA approval for its oral GLP-1 alternative, Rybelsus, which is indicated for type 2 diabetes. Rybelsus has not obtained indication for weight loss, but has shown to help users lose weight.  LLY’s top type 2 diabetes formulas currently account for about a third of its quarterly revenues. Not counting Zepbound, which has FDA approval for its weight loss indication, the combination of Mounjaro and Trulicity quarterly sales topped $3 billion in Q3. And their prospects remain intact, considering both Mounjaro and Trulicity’s growth remains a function of supply availability. Coupled with Zepbound’s go-to-market in December, the cohort of drugs’ early ramp-up, and the substantial opportunities ahead in the segment, LLY benefits from reinforcement to its growth trajectory.

    Mounjaro

    Mounjaro is a tirzepatide GLP-1 drug indicated for type 2 diabetes. It received FDA approval in 2022, and has accounted for almost $3 billion of LLY’s sales in the first nine months of 2023. Mounjaro remains one of the company’s best-selling drugs, with 40%+ sequential revenue growth in Q3, underpinned by both volume and pricing tailwinds. Specifically, on pricing, LLY has begun phasing out impact from savings card program for Mounjaro, which expired on June 30. This accordingly allows higher realization of its listing price going forward, which is beneficial to the top line. As mentioned in the earlier section, LLY has also recently increased Mounjaro’s listing price by 4.5% to $1,069.08 per dose, which further complements the anticipated increase of paid prescriptions. Although volumes have been constrained due to the imbalance between significant demand and limited supplies, impending alleviations are on the way. 

    In addition to its ongoing build-out of expanded manufacturing capacity, LLY is also retooling how the drug is administered to improve supply efficiency. Specifically, Mounjaro is primarily administered via single dose vials right now. But the company is currently in the process of introducing multi-dose injectors for the drug later this year. This will allow LLY to tap into existing manufacturing systems and capacity, and alleviate pressure on single-dose vial supply availability. The company also has a diversified string of third-party agreements in support of additional multi-dose injector supplies, underscoring more streamlined availability to address impending demand through 2024. This flexibility is expected to complement additional manufacturing capacity coming online both later this year and over the longer-term. Taken together, continued acceleration in Mounjaro sales is expected to be back-end weighted in 2024. This is also in line with recent disclosures from the Australia Government’s Department of Health and Aged Care, which anticipates limited Mounjaro supply through August 2024 for all doses.

    Trulicity

    Trulicity is a dulaglutide GLP-1 drug also indicated for type 2 diabetes. It currently accounts for close to a quarterly of LLY’s sales alone, representing the company’s best-selling drug. While volumes continue to be backed by robust uptake, Trulicity faces the ongoing impact of lower realized prices. Specifically, Trulicity’s current list price is $977.42 per month. But with improved access to the drug in recent years, Trulicity continues to face the inherent impact of growing rebated volumes. The impending expiry of its data protection patent later this year in Europe is also a potential risk. However, we expect the LOE exposure to be mitigated by limited Trulicity demand in regions outside of the U.S. (< 5% revenue exposure in Europe). Taken together, we expect continued moderation in Trulicity growth as robust volumes continue to be neutralized by lowering realized price dynamics.

    Zepbound

    Zepbound is LLY’s newest drug to the market. The tirzepatide GLP-1 drug is essentially Mounjaro’s equivalent, but indicated for treating obesity. Zepbound, like Mounjaro, is expected to be one of the fastest growing drugs in LLY’s portfolio. Its recent go-to-market is expected to alleviate some of the unaddressed demand for Mounjaro due to current supply constraints, and complement LLY’s continued capture of impending opportunities in the weight loss market. Zepbound sells at a list price of about $1,060 per monthly dose. With the drug’s new introduction, there is currently a co-pay savings card program offered by LLY. The program reduces Zepbound’s access price to as low as $25 for eligible 1- or 3-month prescriptions. Meanwhile, those with “commercial drug insurance”, but without specific coverage for Zepbound, can pay as low as $550 for a 1-month prescription. This is a similar go-to-market rebate structure as Mounjaro’s, which is expected to boost volume needed to offset lower realized prices. We expect the recent wind-down of Mounjaro’s savings card program, and resulting increase to realized prices, to offset the weaker go-to-market pricing dynamics for Zepbound in the near-term. Their combined impact is likely to become more evident and stabilized entering mid-decade, when supply improves alongside a higher realizable price structure ex-savings cards.

    LLY’s Impending Opportunities in Obesity

    In addition to Mounjaro and Zepbound, LLY is also working on other uses for its tirzepatide GLP-1 drug. They include indications for treating obstructive sleep apnea, mortality in obesity, cardiovascular outcomes in patients with type 2 diabetes. All of which are currently in phase 3 trial, and could be complementary to Mounjaro and Zepbound’s capabilities in capitalizing on impending opportunities in the GLP-1 drug segment. Other than tirzepatide, Orforglipron and Retatrutide are two other highly anticipated GLP-1 drugs that LLY is working on. Both are being tested for use in treating obesity and diabetes. This opportunity in obesity is showing up in the top line revenue numbers. Revenue in Q3 2023 increased 37%, driven by growth from Mounjaro, Verzenio and Jardiance, as well as $1.42 billion from the sale of rights for the olanzapine portfolio (Zyprexa). Excluding revenue from the olanzapine portfolio and COVID-19 antibodies, revenue in Q3 2023 increased 24%.  

    Based on analyst consensus, the company has a strong EPS growth outlook in the next 5 years with an average of 30.63% compared to the forward average revenue growth consensus of 16.8%. Additionally, the forward P/E ratio shows a declining trend to 23.77x by 2027 which is below the industry's current average of 34.3x. GLP-1 drugs have tons of potential upside as the market size is estimated to reach $100-150 billion in sales by the end of the decade Carnivores.  LLY will be at the center of that trend, and likely the world’s first trillion-dollar drug company. 

    now
    ServiceNow

    Technology | NYSE: NOW

    Why We Like It:

    ServiceNow offers one of the most critical cloud computing platforms in the world, one that helps companies manage digital workflows for enterprise operations. ServiceNow stands at the forefront of revolutionizing digital workflows, offering cloud-based solutions that streamline and automate business processes. Founded in 2004, the company has evolved from IT service management (ITSM) roots to become a leader in digital transformation across various organizational functions, including HR service delivery, customer service, and security operations. In that context, ServiceNow operates in the broader enterprise software and cloud computing sector, catering to organizations' increasing demand for workflow optimization. ServiceNow seems to perpetually discover new avenues where its platform can be useful.  

    ServiceNow has blasted past the organic revenue growth trajectories of behemoths like Salesforce (CRM), Adobe (ADBE), and Oracle (ORCL) by continuing to penetrate the world's best enterprise and government customers. That’s all great, but what we really like about NOW today is the connection to AI. ServiceNow is positioned advantageously to experience near-term tailwinds from the evolutionary cycle of generative AI. Investors should consider that ServiceNow has already launched an AI feature for the NOW platform, called NOW Assist, which resulted in a 40% PRO+ adoption and a 25% ASP uplift. On a practical perspective, AI should support the NOW platform in achieving higher deflection rates for incidents, quicker root cause analysis, and the use of natural language for post-incident summaries and analysis. Additionally, AI could support various aspects of digital workflows such as shared services automation, boosting agent productivity, and creating automated knowledge. 

    ServiceNow's TAM, management repeatedly emphasized that there is still ample room for growth in higher-tier accounts, on both new logo and in-logo penetration. Specifically, ServiceNow underscored that its existing customer base of approximately ~8,000 is significantly below the estimated ~50,000 potential customers (clients with either >$100M in revenue or 1,000 employees), with international expansion being a key growth driver. On that note, ServiceNow has doubled down on selling to the global enterprise IT market, having signed sales and collaboration deals with arguably all major system integrators and tech firms.  

    NOW's fiscal Q3 2023 results reflect a robust financial performance, with significant year-over-year growth in its federal business, marking the largest quarter in the company’s history. The federal sector's focus on consolidating contracts and standardizing platforms aligns well with ServiceNow's offerings, contributing to their impressive 75% year-over-year growth in net new annual contract value (''ACV''). The company's success in securing deals, including those with the U.S. Air Force, underscores the strong demand for ServiceNow's platform and solutions in the federal space. Management is confident in the sustainability of this growth, emphasizing the long-term potential as government agencies seek to transform and modernize their operations. Also, ServiceNow's GenAI offerings, particularly in the realm of artificial intelligence, are gaining traction, evidenced by the positive reception of Now Assist, Vancouver, and other features. 

    The focus on generative AI, text-to-code functionality, and vertical-specific solutions positions ServiceNow at the forefront of innovation, responding to evolving customer needs. The company's strategy for the near term revolves around deepening its partnerships, notably with Microsoft (MSFT), to expand its addressable market. The collaboration aims to streamline migrations to Azure and leverage synergies to bring value to a broader customer base. ServiceNow's emphasis on a co-sell motion with Microsoft's enterprise sales teams signifies a concerted effort to tap into new opportunities and fuel growth.  ServiceNow's fiscal Q3 2023 results showcase its formidable financial performance, marked by substantial year-over-year growth, especially in the federal business, achieving a record-breaking quarter.

    While the company has consistently demonstrated its capability to compound growth rates and deliver steady financial results, we think the market may be underestimating it going forward.  Moreover, management notes the importance of the Pro Plus offering, which leverages generative AI as a productivity multiplier. This strategic move caters to customers' desire for enhanced productivity and positions ServiceNow as a key player in driving efficiency across various industries.  Here again, though, the real opportunity is AI.  ServiceNow has doubled down on their investments in AI, releasing generative AI-powered Now Assist for all workflows. NOW emphasized that AI is driving growth and points to a pipeline of over 300 customers from various industries and stages of testing. NOW's Creator Workflows product surpassed $1 billion in ACV during Q3, and the Employee Pro SKU saw a 100% growth in net new ACV YoY. While most companies this year have emphasized the importance of AI on their business and emphasized how AI is working its way into end products, there is serious natural fit here for NOW. Given that at its core NOW sells a workflow automation platform, using AI to identify and improve those workflows makes a ton of sense. Plus, the company has a huge data advantage given how many companies are plugged into the software. Process mining for AI workflow generation could be a significant advantage going forward, and NOW will be at the heart of it. 

    download-1
    Novo Nordisk

    Healthcare | NYSE: NVO

    Why We Like It:

    Novo Nordisk (NYSE: NVO) is the market leader in the fast-growing obesity care industry, which is expected to grow above 20% CAGR until 2030. We have been telling people for over a year that the weight loss drugs (NVO as a leader) will be the biggest drugs of all time. This is one of the most powerful trends in the world outside of Artificial Intelligence, Carnivores.  Another great thing about NVO’s drug markets is that there are barriers to entry, pricing power, and low elasticity of demand.  The company is enjoying the long-term tailwinds of an increasing population with diabetes and obesity-related diseases, which has allowed for a significant reinvestment rate in organic growth, acquisitions, and production facility expansion. 

    The company raised three times its guidance during 2023, driven by a 481% growth in Wegovy's revenues.  Novo Nordisk has the type of high returns on invested capital, recurring revenues, low debt, and excellent capital allocation make it the kind of company we want to own. They’ve got the steady insulin market that is highly concentrated and only three companies -Novo Nordisk, Sanofi (SNY), and Eli Lilly (LLY)- who control over 90 percent of the global market, allowing them to enjoy high margins, returns on capital, and pricing power. Although there are very few insulin products that have patent protection on the compound itself, the majority of insulin products still have patent protection on the pens and other devices that deliver the dose of insulin.  This market structure and the entry barriers has allowed Novo Nordisk to increase its revenues by 10.5% CAGR over the last 10 years. That is a great business and a cash cow. 

    Since it supplies a first-necessity product with low demand elasticity, operating margins are over 43% and returns on invested capital are at an astonishing 32%. In recent years however a new business has emerged with explosive growth. Novo Nordisk has been increasing its focus in the obesity segment, which only generated 2% of revenues in 2017 and currently makes over 18% of total revenue, exceeding investors' expectations.  This is the real growth opportunity, Carnivores. NVO increased guidance three times during 2023 (April, August and October), revenue growth is expected to be at 29% for the full 2023 (34% at CER) and net income margins above 36% (compared to 31.4% in 2022). The impressive results the company has been able to deliver during the year has been primarily driven by the INSATIABLE DEMAND for injectable GLP-1, with Ozempic revenues growing by 53% during the first 9 months, and the obesity care segment growing by 167% during the same period, mainly driven by a 481% growth in Wegovy's revenues. 

    Ozempic generates almost 40% of total revenues, so an increase of demand has a significant impact on the overall results. While Wegovy revenues represented a small percentage during last year due to supply issues (2.9%), the company has been expanding its production facilities, and it can currently supply the full U.S. demand for the 2.4mg dose (still experiencing issues to meet the 1.7mg demand), increasing the contribution to 13% of total revenues during 2023. From a geographic perspective, GLP-1 diabetes products grew at faster rates outside the U.S., mainly driven by the demand in China (80% revenue growth), while the growth on obesity products was mainly driven by the U.S., which is the main market for this segment (79% of obesity revenues) and where the company has put more efforts on meeting the increasing demand.  In Europe, the company has only launched Wegovy in Germany, the U.K., Denmark, Norway, and Iceland, so there is still significant growth ahead.  

    One of the main issues the company has faced over the last few years has been the disruption in the supply chain, which combined with a meteoric increase in demand has caused a shortage of certain products (mainly Wegovy and Ozempic). Great problem to have right?  To solve this issue, Novo Nordisk started last year a restructuring of the supply chain and has been gradually investing in expanding its production capacity. In June 2023, the company started the construction of a new manufacturing plant in Hillerød (Denmark) to expand the existing Active Pharmaceutical Ingredient (API) production by early 2029, which will cost $2.35B.

    Recently, the company has announced it will acquire Alkermes's development and manufacturing facility in Ireland for $92.5M by mid-2024, and the expansion of the French manufacturing site, which will be finalized between 2026 and 2028 for a total investment of $2.35B and will double the production capacity of the site. But the biggest announcement has been the $6.2B that will be invested in expanding one of Novo Nordisk's largest facilities (Kalundborg, Denmark), which will be gradually finalized between 2025 and 2029.  NVO reported excellent FQ3'23 results, with revenues of Danish Kroner 58.73B (+8.1% QoQ/ +28.9% YoY) and GAAP EPS of DK5.00 (+15.7% QoQ/ +57.7% YoY). Its Free Cash Flow profitability has also ballooned to DK 35.13B (+54.8% QoQ/ +67.3% YoY) with impressive margins of 59.8% (+18 points QoQ/ +13.7 YoY) in the latest quarter, or 39.7% over the last twelve months (+4.1 points sequentially). NVO's recent FCF margins are noteworthy indeed, especially when compared to its FY2019 margins of 31% (-0.3 points YoY) and its direct peers, such as Eli Lilly (LLY) at 8.8% (-13.2 points sequentially), Pfizer (PFE) at 11.9% (-11.5 points sequentially), and Amgen (AMGN) at 35% over the LTM (+0.8 points sequentially). As a result, it is unsurprising that NVO's balance sheet has improved drastically to a net cash position of DK 27.67B (+62.8% QoQ/ +107.4% YoY) by the latest quarter. 

    NVO’s shareholders have benefited from management's sustained share repurchases, resulting in 48M shares retired over the LTM or 268.4M since FY2019. This is on top of its 3Y Dividend Growth Rate of +16.52%, compared to the sector median of +5.81%. As a result of the profitable growth trend, it is unsurprising that NVO management has raised its FY2023 guidance to revenues growth of +35% YoY and operating profit growth of +43% YoY at the midpoint. This is compared to the original YoY growth guidance of +16% and +16% offered in the FQ4'22 earnings call, respectively.  A mega-trend in obesity to ride, strong pricing power, investments to increase supply, and raising guidance are all the types of attributes that you want in a stock.

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