MS starts Novonesis at Overweight, says stock to rerate towards its prior highs

Published 29/05/2025, 07:48

Investing.com -- Morgan Stanley (NYSE:MS) has initiated coverage of Novonesis with an Overweight rating and a price target of DKK577, implying a 24% upside. The Wall Street firm expects the stock to rerate toward its historical premium, underpinned by structural demand tailwinds and margin expansion.

"Novonesis is a high-quality biotech-based growth compounder with structural end-market drivers to sustain above-peer top-line growth and margins," analysts led by Thomas P. Wrigglesworth wrote.

"Delivery on sustained growth should see the stock rerate towards its historical premium to peers," they added. 

The analysts forecast a 7.4% top-line compound annual growth rate (CAGR) and an 18.2% EPS CAGR between 2024 and 2027, with EBITDA estimates running 8% and 3% above consensus for 2025 and 2026, respectively.

Key drivers include the merged entity’s improved commercial execution, synergy realization, and tailwinds in core end-markets such as dairy, bioenergy, and human health.

Morgan Stanley highlighted that Novonesis enjoys a 500 basis point lead in R&D spending relative to peers, which supports a sustainable innovation pipeline and growth advantage.

The bank expects Novonesis to trade at a higher EV/EBIT multiple over time. “At our price target, the EV/EBIT premium rises to c.70% (from c.40%) – in the last growth boom in 2008-13, Novonesis traded at an average 98% premium.”

The analysts also see the potential reinstatement of share buybacks—such as the €100 million announced for 2025—as an additional catalyst, referencing Novozymes (OTC:NVZMY)’ historical program that retired 16% of its market cap from 2011 to 2022.

Novonesis was formed in 2024 through the merger of Novozymes and Chr. Hansen, combining their leadership in enzyme, culture, and probiotic technologies to create a global biotechnology giant.

Morgan Stanley pointed out several risks to its thesis, including questions around pricing power and the durability of margin expansion. However, the bank believes Novonesis’ structural growth exposure and manufacturing efficiencies offset these concerns.

It expects the company to be net cash by 2028.

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