On Thursday, Novozymes (OTC:NVZMY) A/S (NZYMB:DC) (OTC: NVZMY) experienced a shift in market outlook as Citi downgraded its stock from Neutral to Sell, while slightly increasing its price target from DKK390.00 to DKK400.00. The change in rating comes despite a strong performance by the company over the past year, with its shares surging by 60%.
Citi's analysis suggests that the impressive share price movement has been buoyed by mid-term growth expectations that may not materialize. The firm conducted a comprehensive review, including a detailed growth model and new analysis of underlying drivers, as well as channel checks in the Energy and Dairy sectors. The outcome of this research predicts a market growth for enzymes and cultures at 4.1%.
The forecasted organic sales growth for Novozymes is pegged at 5.7%, which could increase to 6.2% when considering sales synergies. These figures fall short of the consensus estimate of around 7% and the company's own management expectations, which aim for growth to accelerate beyond the current guide of 6-8%.
Despite the downgrade, Citi acknowledges Novozymes as a high-quality company. However, the firm's underlying (u/l) EBITDA forecasts are approximately 7% below the consensus by 2028, even when cost synergies are taken into account. The new price target of DKK400 per share implies a price-to-earnings (P/E) ratio of 31 times, excluding all purchase price allocation (PPA) amortization.
This valuation led to the recommendation to sell the stock.
InvestingPro Insights
While Citi has downgraded Novozymes A/S (OTC: NVZMY) to Sell, InvestingPro data and tips offer additional context to this decision. The company's market cap stands at $30.61 billion, with a P/E ratio of 60.58, indicating a high earnings multiple as noted in one of the InvestingPro Tips. This aligns with Citi's concern about the stock's valuation.
However, Novozymes has shown strong revenue growth, with a 27.85% increase over the last twelve months and an impressive 61.7% quarterly growth in Q2 2024. This robust performance is reflected in the stock's 65.12% price return over the past year, supporting the InvestingPro Tip that highlights the company's high return over the last year.
Despite the high valuation, Novozymes has maintained dividend payments for 24 consecutive years, suggesting financial stability. The company's current dividend yield is 1.34%, with the last ex-dividend date on September 9, 2024.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for Novozymes, providing a broader perspective on the company's financial health and market position.
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