Impact on earnings guidance:
The pending class‑action lawsuit adds a material litigation‑risk head‑count to Novo Nordisk’s balance sheet. Even though the claim is still in the pleading stage, the firm now faces a potential liability that could run into the low‑hundreds of millions if the case proceeds to settlement or judgment. Management will likely adopt a more conservative tone in its next earnings preview, trimming any upside guidance for 2025‑26 to preserve a cushion for legal reserves. Analysts should watch the upcoming quarterly call for language around “higher litigation expenses” or “increased contingent liabilities.” If Novo elects to increase its accruals in the current quarter, earnings per share (EPS) could be modestly depressed, which may prompt a short‑term dip in the stock despite the long‑term growth story in diabetes/obesity.
Dividend‑policy considerations:
Novo’s dividend payout (≈ 70 % of free cash flow) has been a key driver of its valuation premium. A large, uncertain legal outlay can pressure free cash flow, prompting the board to either hold the payout steady but lower the implied growth rate, or temporarily suspend incremental dividend hikes until the litigation outcome is clearer. Market participants should therefore expect the dividend‑increase guidance for FY 2025 to be muted or, at worst, a “maintain current level” statement. In practice, a modest dip in the dividend yield (e.g., from 1.8 % to ~1.5 %) could be priced in over the next 2‑3 months, especially if the share price falls on the negative sentiment signal (‑70).
Trading takeaway:
- Short‑term bias: The lawsuit news has injected negative sentiment and may trigger a 3‑5 % pull‑back on the next trading session; consider a modest short position or a protective put if you hold long exposure.
- Risk‑adjusted long bias: If you remain bullish on Novo’s pipeline, look for entry near the 200‑day SMA (~DKK 800) with a tight stop just below the recent swing low (DKK 770). The dividend remains attractive relative to peers, so a rebound after the earnings call—if guidance is only modestly revised—could offer a 4‑6 % upside in the next 6‑9 weeks.
- Watchlist items: Upcoming Q3 earnings call (expected early Oct), any court filings before Sep 30, 2025, and the company’s Q3 cash‑flow statement for changes in the litigation reserve line. These will confirm whether the guidance/d dividend outlook is being revised downward.