Investing in rapidly expanding biotech stocks can be a worthwhile long-term investment. Just one successful drug or device can propel a biotech company to new heights. And biotech companies that use cutting-edge technology or treat complex diseases will always be in demand.
One such company is Eli Lilly (LLY), a global pharmaceutical leader that has been a standout performer in the stock market in recent years. Over the past 10 years, the stock has increased by 1,035.2%. It is known for developing ground-breaking treatments for autoimmune diseases, cancer, obesity, Alzheimer’s, diabetes, skin diseases, and other conditions.
Its innovative approach has resulted in a strong portfolio of drugs, including Trulicity, Jardiance, and Verzenio, which generate significant revenue. Furthermore, its weight loss drugs Mounjaro and Zepbound have caught both investors’ and Wall Street’s attention.
With the year ending, Eli Lilly stock has gained 33% so far, compared to the S&P 500 Index’s ($SPX) gain of 24%. Currently, Eli Lilly is valued at a market cap of $743.4 million. CNBC Mad Money host Jim Cramer believes Eli Lilly will soon be part of the $1 trillion market capitalization club.
Let’s find out if it’s the right time to buy, hold, or sell Eli Lilly stock.
The Bull Case for Eli Lilly Stock
Eli Lilly has a robust pipeline of drugs aimed at high-impact diseases. Its financial results showcase its strong operational performance and market leadership. Lilly’s third-quarter total revenue increased by 20% to $11.4 billion, while adjusted earnings per share (EPS) increased to $1.18 from $0.10 in the year-ago quarter. Gross margin increased to 82.2% from 81.7% in Q3 2023.
Management stated that weight loss drugs Mounjaro and Zepbound contributed the most to revenue from new products, which increased by $3 billion. Notably, these two drugs combined generated $4.37 billion in total revenue in Q3, trailing only Verzenio ($1.4 billion for advanced or metastatic breast cancer) and Trulicity ($1.3 billion for Type 2 diabetes).
The company's non-incretin revenue increased by 17% overall, thanks to its oncology, immunology, and neuroscience portfolios.
Recently, Eli Lilly received approval in China for Kisunla, which treats adults with early symptomatic Alzheimer’s disease (AD). The drug is already approved in the U.S., Japan, and Great Britain. The U.S. Food and Drug Administration (FDA) also approved Ebglyss for the treatment of moderate to severe atopic dermatitis in adults and children aged 12 years or older.
Eli Lilly’s diabetes and weight-loss drugs have been successful and remain in high demand, despite competition from Novo Nordisk’s (NVO) competitors Wegovy and Ozempic. Eli Lilly can capitalize on the growing weight-loss drugs market, which is projected to be worth $82.8 billion by 2032.
Furthermore, Jim Cramer believes that these drugs could help treat a variety of other conditions, including cardiovascular and liver disease. On Dec. 20, the FDA approved Zepbound to treat sleep apnea for adults with obesity.
More Growth for Eli Lilly
In the third quarter, Eli Lilly completed the acquisition of Morphic Therapeutic, which develops oral integrin therapies. Despite ongoing investments in developing its pipeline and strategic acquisitions, the company’s balance sheet remains strong. At the end of the third quarter, cash and cash equivalents totaled $3.37 billion.
Furthermore, Eli Lilly is also a dividend stock. Its yield of 0.77% is moderate when compared to the healthcare industry average of 1.58%. Nonetheless, the company has consistently paid dividends over the last 34 years.
Its forward payout ratio of 26.5% indicates that its current earnings can sustain dividend payments with room for growth. On Dec. 9, Eli Lilly announced a $15 billion share repurchase program. The company completed its previous $5 billion share repurchase program in the fourth quarter. It also announced a 15% increase in the quarterly dividend to $1.50 per share, marking the company’s seventh consecutive annual dividend increase.
However, its debt-to-equity ratio is quite high at 2.03x, which is not unusual for growing biotech companies. As of October 2024, Eli Lilly had spent $14.8 billion on research and development, capital investments, and business development expenses, paying out $3.5 billion in dividends and $0.4 billion worth of share repurchases.
Looking ahead, management expects 2024 adjusted EPS to fall between $13.02 and $13.52, compared to $6.32 in 2023. Revenue could rise to $45.4 billion to $46 billion from $34.1 billion in 2023, according to consensus estimates.
Analysts expect Lilly’s earnings to rise by 107.8% in 2024, followed by another 72.3% increase in 2025.
What Is Wall Street Saying About Eli Lilly?
Overall, analysts maintain a "Strong Buy" rating for Eli Lilly, citing strong growth in the obesity drug market, expansion of its oncology portfolio, and positive pipeline developments. This month alone, Leerink Partners, Citi, Jefferies, Bernstein, and a number of other analysts have reiterated their “Buy” rating on the stock. Analysts at these firms believe that new approvals and the company’s strategic expansion position it for long-term success.
Out of 25 analysts covering the stock, 20 have a “Strong Buy” rating, one has a “Moderate Buy,” and four rate it a “Hold.”
The average target price of $1,005.42 suggests the stock has upside potential of 28.4% above current levels. However, its high target price of $1,250 implies potential upside of 59.6% over the next 12 months.
The Verdict
Overall, Eli Lilly’s innovative pipeline, strategic acquisitions, strong financial performance, and focus on high-growth therapeutic areas like obesity and oncology position the company well for long-term growth.
Investors looking for biotech exposure should consider Eli Lilly as a long-term growth play. Eli Lilly stock is somewhat expensive, trading at 34.6x forward 2025 earnings. However, I believe that the company’s successful portfolio and ongoing developments position it for long-term growth, which may justify the premium.
