The urgency for effective diabetes and obesity treatments has never been more pronounced. According to the World Health Organization, the global prevalence of diabetes has nearly doubled since 1980, rising from 4.7% to 8.5% of the adult population. This surge underscores the critical need for innovative therapeutic options. Eli Lilly's (LLY) response to this demand has been not only timely but also highly successful, with its market-leading drug Mounjaro (tirzepatide) generating over $5 billion in sales in its first full year on the market — a testament to its efficacy and market demand.
Incretins like Mounjaro now account for a remarkable 27% of all diabetes prescriptions in the U.S., highlighting the rapid shift in treatment paradigms. Strong demand for GLP-1 drugs just inspired Eli Lilly to revise its 2024 revenue forecast upward by a staggering $2 billion, with the pharma giant now anticipating revenues to be between $42.4 billion and $43.6 billion - and the company just released more upbeat drug data, too.
Moreover, Eli Lilly has demonstrated a notable commitment to consistent dividend payouts, which it has increased for nine consecutive years.
Let’s take a closer look into the compelling reasons behind Eli Lilly's “strong buy” consensus on Wall Street, and explore why this pharmaceutical powerhouse is poised for sustained growth in the booming diabetes and obesity treatment market.
LLY Looks Poised for Explosive Growth
Valued at $722 billion, Eli Lilly and Company (LLY) is a global pharmaceutical powerhouse, renowned for its innovative medicines and therapies across various therapeutic areas, including diabetes, oncology, and immunology. The company's robust product portfolio and promising pipeline have fueled its remarkable growth trajectory.
Over the past year, LLY's stock has been on an absolute tear, driven by robust sales of its GLP-1 drugs - and optimistic forecasts for future demand. The stock is up 74% over the past 52 weeks, and LLY is up nearly 30% on a YTD basis.
This strong price action has been driven by LLY's financial performance, which looks equally impressive. In the first quarter of 2024, the company reported earnings per share (EPS) of $2.58, surpassing the consensus estimate of $2.53. While revenue for the quarter slightly missed expectations at $8.77 billion, robust sales growth for its weight loss drugs, Mounjaro and Zepbound, generated a combined revenue of $1.81 billion, driving its overall performance.
Following the Q1 2024 earnings announcement, LLY shares surged by nearly 6% in a single day, as the freshly hiked revenue forecast overshadowed the quarterly top-line miss. Looking ahead, Wall Street is targeting full-year EPS of $13.82 in fiscal 2024, up 118% year-over-year.
Despite the soaring stock price, LLY's price/earnings-to-growth ratio suggests the shares are still fairly priced. The current PEG ratio of 1.53 is a discount to Lilly's own five-year average above 2, and it's also cheaper than rival Novo Nordisk (NVO) at 2.01.
Lilly's Latest Data Drop
Eli Lilly's strong fundamentals are solidly supported by its exciting pipeline and recent positive developments. The company's next-generation diabetes drug, mazdutide, has hit a home run in a Phase 3 clinical trial in China, achieving its primary endpoint by showing superior blood sugar control and significant weight reduction compared to the placebo when added to standard type 2 diabetes treatment.
Additionally, Lilly's Mounjaro is showing promise for obstructive sleep apnea patients in new clinical trials, which could help to further expand insurance coverage for the drug.
Growth Plus Passive Income
On top of its strong fundamentals, Lilly also boasts an impressive dividend history. The company has been consistently paying dividends for over 100 years, with the first recorded payment dating back to 1885. Moreover, the company has increased its quarterly dividend for 10 consecutive years, with the most recent increase from $1.13 to $1.30 per share occurring in December 2023.
With an annualized dividend of $5.20 per share and a current yield of 0.68%, Lilly isn't the high-yielding passive income pick that it used to be back in its Dividend Aristocrat days, ahead of the Wyeth acquisition. However, this pharma giant offers a reliable dividend payout to investors that's well-covered by earnings - and it offers quite a bit of growth potential, too.
Notably, Lilly's dividend growth rate is 14.45% over the past five years, and the company also scooped up $750 million in stock last year.
Wall Street's Verdict: A Resounding Endorsement for LLY
Top analysts are setting ambitious price targets for LLY, buoyed by the company's impressive quarterly showings and the successful rollout of key products like Mounjaro and Zepbound. These drugs are expected to be big revenue drivers, with Zepbound alone poised to rake in billions in annual sales.
For instance, Robyn Karnauskas from Truist Securities recently upped her price target to $892, suggesting a potential 17.6% rise from current levels. BMO Capital's Evan Seigerman is even more bullish, handing out a price target of $1,001 and spotlighting the strong supply and demand dynamics underpinning the company's market position.
Out of 21 analysts, 18 are all in with a “strong buy” rating, one suggests a “moderate buy,” and two are playing it safe with a “hold” position.
Analysts have pegged the mean price target at $806.43, indicating expected upside of about 6.4% from here. The most optimistic scenario calls for about 35% upside to the Street-high price target of $1,032.
The confidence in Eli Lilly isn't just from analysts but also from big institutional investors. With about 88% of its stock held by institutional investors, it's clear the big money has a lot of faith in Eli Lilly's future prospects.
Seizing the Opportunity: Why LLY Is a "Strong Buy" for the Long Haul
Eli Lilly is firing on all cylinders with its blockbuster diabetes and weight-loss drugs like Mounjaro and Zepbound. With a growing global demand for diabetes and obesity treatments, Eli Lilly's revenue is projected to reach new heights, and the company's commitment to shareholders is further demonstrated by its consistent dividend payouts.
Despite its rising valuations, Eli Lilly's stock is reasonably priced for its explosive growth potential, making it a healthy long-term addition to any investment portfolio.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
