Holding a promising future due to recent success in the obesity drug market, Eli Lilly (NYSE:LLY) appears to be bound for continued gains. An impressive move higher in LLY stock, with the company’s stock price surging more than 50% year-to-date, is evidence that many in the market believe this company could have much more room to run from here.
Of course, as large-cap companies see their valuation multiples swell, concerns around a potential slowdown affecting the value of a given investment at these levels rises. At more than 100-times earnings, Eli Lilly is far from what most investors would consider a value pick.
However, the sales of the company’s core GLP-1 drugs have taken off. A partnership with Medicare and spiking sales of Eli Lilly’s Trulicity diabetes drug has allowed the drug maker to haul in $4.7 billion in prescriptions this past quarter alone in this business line. With this strong demand and favorable pricing negotiations, Eli Lilly is poised to become the top healthcare stock investors will want to own over the long-term.
The company also recently reported very robust Q2 earnings and revenue, exceeding expectations on both lines. As if that wasn’t enough, Eli Lilly raised its FY 2024 revenue forecast by $3 billion due to strong sales of their diabetes drug Mounjaro and weight loss injects Zepbound. On Thursday, the stock closed more than 9% higher, and this rally continued into Friday.
Here’s why Eli Lilly is a stock to own now.
Key Points About This Article:
- Eli Lilly remains a top big pharma stock investors are flocking to in this time of uncertainty, due to the company’s strong growth profile.
- A leader in the GLP-1 weight loss market, Eli Lilly could be poised to continue growing at a historically impressive rate for many years.
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Can This Strong Year-to-Date Move Continue?
One of the top performing stocks in the S&P 500 due to the tech rally, Eli Lilly continues gains more traction in the pharma sector for a number of reasons. The company’s impressive first half surge can be attributed largely to incredible sales from core weight-loss drugs Mounjaro and Zepbound. However, many analysts believe LLY stock could have much more room to run, especially when considering the weight loss drug market is expected to reach $100 billion by 2030. That’s to say nothing of the company’s upcoming Alzheimer’s treatment, which could be approved in the coming years.
Now officially approved for type 2 diabetes, Mounjaro is mostly prescribed off-label as a weight loss drug. This particular drug alone has generated billions in revenue, adding to Eli Lilly’s strong performance. The newly approved Zepbound, designed specifically for weight loss, earned over $517 million in its first full quarter, positioning it as a potential blockbuster over the long-term.
In addition to other lifestyle changes, these drugs are becoming increasingly crucial for weight-loss treatments. This has pushed the company to add $18 billion in investment to expand production. Competition from Novo Nordisk and the potential for a pill (Mounjaro and Zepbound are both injectables) have creates headwinds for the company. But given Eli Lilly’s strong performance thus far and current market share, there’s a reason why many investors believe this is a stock to own for the long-haul.
Strong Financials and Excellent Valuation
Eli Lilly has reported strong earnings growth. But as it grows, the market is now focused to the question whether the stock is overvalued. Currently, LLY stock trades 66-times forward earnings and resembles an excellent growth stock. Long-term investors may see this as a justified valuation, potentially driving the stock higher. A 9% increase would push Lilly’s market cap to $900 billion, making the $1,000 mark achievable, though the stock’s long-term growth prospects remain strong regardless.
The company’s strong stock performance is well-supported by key products. Mounjaro, its top seller, saw U.S. sales for type 2 diabetes triple year over year to over $1.8 billion in Q1 2024. Zepbound, approved in November 2023 for weight loss, generated $517 million in its first full quarter. Other significant contributors include Verzenio, with a 40% sales increase, and Jardiance, Humalog, and Taltz, all of which posted double-digit sales growth in Q1.
Lilly is eagerly awaiting approval for two potential blockbusters: mirikizumab, projected to reach $2 billion in sales for Crohn’s, and donanemab, expected to surpass $5 billion for Alzheimer’s. Their pipeline also included promising diabetes, obesity drugs, and further uses for tirzepatide.
Strong Demand for LLY Stock Could Continue
Despite strong growth drivers, Eli Lilly’s stock faces challenges. With a forward earnings multiple above 65-times and a PEG ratio of 2.5, expectations are clearly high and baked into this stock at current levels. Competition from Novo Nordisk and potential issues with Lilly’s pipeline could impact future growth, making the stock’s lofty projections uncertain.
In a CNBC interview, CEO David Ricks highlighted the strong organic demand for Eli Lilly’s weight-loss drugs, noting that little promotion was needed. JPMorgan, which rates Lilly as overweight with a $1,000 price target, praised the company’s performance and potential, citing expected gains from increased capacity, new products, and positive outcomes data.
Despite high valuation metrics, Lilly stock remains a strong buy. The company’s promising growth, driven by Mounjaro, Zepbound, and future products, supports its potential. With a diverse pipeline and solid market prospects, Lilly is poised to sustain its leadership and deliver long-term gains.
I think a surge above the $1,000 is certainly likely, particularly if this stock market rally continues. And even if the economy weakens, I do think demand for more defensive areas of the market, such as pharmaceuticals, could actually increase. Thus, this is a well-positioned growth stock that investors may want to take a closer look at, particularly on dips moving forward.
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