Eli Lilly and Company (NYSE: LLY) has had quite a year and things keep sparkling. Its stock started off the year at $276.22 and has steadily made its way to a current value of $324.44. While this is only slightly lower than the 52-week range high ($231.87 to $341.70), analysts have estimated a median 12-month price forecast target of $351.50 with a range of $202 to $408. Eli Lilly could set a new high very soon.
The stock is up 17.46% so far, with a high P/E ratio of 51.77. Analysts have given LLY stock a "strong buy" rating, a bit of an upgrade over a consistent "buy" rating over the last three months.
Earnings Are Stable and Steadily Growing
Key Points
- Eli Lilly and Company's stock continues to climb.
- The company's new diabetes drug approval, Mounjaro, could become a bestseller.
- Eli Lilly has a high P/E ratio of 51.7 with an upside of 39.38% year-over-year.
Eli Lilly stock has stayed consistent on earnings. On a quarterly basis, earnings per share (EPS) have beaten the estimate two out of four of the most recent quarters. When EPS did not beat the estimate, the margin was very small.
In Q3 of 2021, the its $1.94 earnings came in just two cents off the estimate, still notably better than the range's low. In Q2 of 2022, however, actual earnings were only $1.25, which couldn't even breach the range low of $1.43.
Although its most recent quarter may show evidence of some hardship, annual earnings suggest stable growth. Reported earnings in 2018 fell two cents shy of $5.57, but it was still comfortably in the range. The next two years reported an earnings beat not only in the estimate but also the entire range and at higher values every year. The $8.16 reported earnings barely beat the estimate but not the range in 2021.
New T2D Drug Expected to Dramatically Boost Sales
One major reason Eli Lilly has prospered is that the pharmaceutical giant just received FDA approval for a new type 2 diabetes (T2D) medication called Mounjaro, the first FDA-approved dual GIP and GLP-1 receptor agonist. The drug has proven more effective at reducing a TD2 patient's body weight and A1C levels than other medications.
Eli Lilly's previous GLP-1 receptor agonist drug, Trulicity, has been its best-selling medicine. Trulicity is still not as popular as the best-selling immunology drug, Humira from AbbVie, which peaked at $20.7 billion. Comparatively, analysts believe Mounjaro could peak at $25 billion. Since Humira will face competition from generics in 2023, sales at Humira could easily drop. This puts Mounjaro and Eli Lilly in an actionable position.
Analysts Set High Hopes on LLY in the Near Future
On paper, it might appear that Eli Lilly is not the best-performing drug manufacturer in its sector. For example, among the major pharmaceutical stocks, LLY has the lowest upside at only 3.27%. By comparison, its most direct large-cap medical company competitor is AbbVie (NYSE: ABBV), which has an upside of more than 12%. AbbVie also has higher earnings per share ($6.27 vs. $7.06), a higher net margin (19.58% vs. 22.03%), a higher return on equity (ROE) (85.58% vs. 158.41%) and higher annual dividend per share ($3.92 vs. $5.64).
On the other hand, Eli Lilly has a remarkably high P/E ratio at 51.7 with an upside of 39.38% year-over-year. This is about 10 percentage points higher than AbbVie and about 25 percentage points higher than Merck & Co. Inc (NYSE: MRK). MRK shares LLY's beta (around 0.32), meaning they both have relatively lower volatility risk than AbbVie, which has a beta is more than double, at 0.65.
But the steady increase in LLY's price target likely comes from analysts' high ROE this year at 189.37%. LLY earnings are expected to outpace both its industry (by double) and the market (by about a third).
Eli Lilly's earnings are expected to grow 24.9% per year, while the U.S. drug manufacturing market will likely only grow about 13.8%. Similarly, LLY will also grow faster than the rest of the U.S. stock market average (17.13%). It is also expected to grow faster than the risk-free savings rate (3.9%).
In addition, revenue is also expected to grow at 7.01% this year, compared to U.S. drug manufacturers' projected 1.03% revenue. However, LLY revenue is expected to grow more slowly than the U.S. market average, which should hit 8.25%. While the growth may start slow, LLY's "strong buy" rating suggests this could change soon.
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