Eli Lilly & Co. (NYSE:LLY) has been a standout performer in the pharmaceutical industry, with its stock surging 58% year-to-date (YTD) and an impressive 68.6% over the past 52 weeks. This significant growth raises the question: is Eli Lilly stock still a buy, or has the rally run its course? In this “Eli Lilly Stock Analysis,” we delve into the factors behind its meteoric rise and assess whether it remains a compelling investment.
Eli Lilly’s Blockbuster Success
Eli Lilly, valued at $876.3 billion, is a mega-cap pharmaceutical giant headquartered in Indianapolis. The company has gained recognition for its innovative treatments in areas such as obesity, diabetes, cancer, immunological disorders, and neurological conditions. In particular, the blockbuster success of its Type II diabetes drug, Mounjaro, and its obesity treatment, Zepbound, has been a key driver of the stock’s recent surge.
In the last year, these two drugs alone generated over $4 billion in sales during Q2 2024, far exceeding expectations. This exceptional performance has not only contributed to the company’s revenue growth but also bolstered investor confidence, propelling LLY stock to new heights.
Q2 Earnings Beat and Upward Guidance
Eli Lilly’s Q2 2024 earnings results were a testament to its strong market position. The company reported net income of $2.97 billion, or $3.92 per share on an adjusted basis, comfortably beating Wall Street’s estimates. Revenue for the quarter came in at $11.3 billion, well above analysts’ forecast of $9.83 billion.
The company’s ability to consistently outperform expectations led management to raise its annual revenue forecast by $3 billion, bringing the new range to $45.4 billion to $46.6 billion. Adjusted earnings per share (EPS) are now expected to be between $16.10 and $16.60, a significant increase from the previous forecast.
This upward revision is largely attributed to the better-than-expected sales of Mounjaro and Zepbound, as well as the anticipated international launches of these drugs. The improved clarity around the timing and pace of the company’s production expansions also played a crucial role in the revised guidance.
Analyst Ratings and Future Outlook
The strong performance of Eli Lilly has not gone unnoticed by analysts. LLY stock is currently rated as a “Strong Buy” by the majority of analysts, with 20 out of 22 analysts assigning it this rating. Notably, Morgan Stanley (NYSE:MS) analyst Terence Flynn recently reiterated his “Overweight” rating on the stock, raising his price target from $1,083 to $1,106.
Flynn’s optimism extends beyond the current products, as he sees potential upside from Eli Lilly’s oral GLP-1 drug, orforglipron, which is expected to deliver phase 3 results by mid-2025. This future pipeline, combined with the company’s current blockbuster drugs, makes Eli Lilly a compelling investment opportunity, even at its elevated valuation.
The mean price target for LLY now stands at $961.52, suggesting a potential upside of around 4.5% from current levels. The most bullish target on Wall Street is $1,117, indicating that the stock could climb as much as 21.4%.
Valuation: Priced for Growth?
At nearly 58 times forward adjusted earnings, Eli Lilly stock is undeniably priced for growth. However, this valuation might still be justifiable given the company’s robust pipeline, strong earnings momentum, and the growing market for its existing drugs. Moreover, Eli Lilly’s price/earnings-to-growth (PEG) ratio of 1.36 is lower than the healthcare sector median, indicating that the stock may still offer value despite its high price.
Conclusion: Is Eli Lilly Stock Still a Buy?
Given its impressive YTD performance and strong future prospects, Eli Lilly remains an attractive stock for growth-oriented investors. The company’s ability to consistently beat earnings expectations, coupled with its promising pipeline, suggests that there could be more upside ahead. While the stock is not cheap, its valuation is supported by strong fundamentals and a strategic focus on high-growth therapeutic areas. Therefore, Eli Lilly could still be a buy for those looking to capitalize on its ongoing success.
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