Company Event
Eli Lilly has several upcoming events where it will present new research and updates on its products, primarily at major medical conferences. Notably, Lilly will participate in the American Society of Hematology Conference on December 8–9, 2024, where it will present multiple abstracts related to hematology research. Additionally, on December 11–13, the company is set to showcase at the San Antonio Breast Cancer Symposium, presenting findings on various oncology products and research initiatives.
Looking forward, Eli Lilly is also expected to release its Q4 2024 earnings report on January 29, 2025, which will offer insights into the company’s financial performance and ongoing projects.
Earning Overview
Q3 2024 earnings report, released on October 30, showed significant growth, though it fell short of expectations in some areas. Revenue for the quarter rose 20% year-over-year, reaching $11.44 billion, driven primarily by strong performances from its diabetes and cancer drugs, including Mounjaro and Zepbound. Mounjaro sales more than doubled to $3.11 billion, marking a major growth driver for the company. However, the company missed analysts' revenue expectations by about $700 million.
Adjusted earnings per share (EPS) were reported at $1.18, which exceeded Q3 2023's $0.10 but missed consensus estimates of $1.45. This was primarily due to a large $2.98 billion charge from acquired in-process research and development (IPR&D) costs, reflecting the company's ongoing investments in its pipeline.
The company also revised its full-year 2024 guidance, now projecting revenue between $45.4 billion and $46 billion. Despite this positive outlook, Eli Lilly's stock faced pressure following the earnings release due to concerns over the missed EPS target and the adjusted forecast.
Fundamental Analysis
As of November 2024, many analysts suggest that Eli Lilly's stock (LLY) is currently trading at a premium, driven by strong growth potential from its weight-loss and diabetes drugs, particularly Mounjaro and Zepbound, as well as its pipeline of Alzheimer’s treatments like donanemab. These factors have contributed to a stock price that has experienced significant growth, particularly over the past few years, reaching new highs despite some concerns about market risks and competition.
Revenue and Earnings Growth
Eli Lilly has shown strong financial performance, with revenue surging by 19.56% in 2023 to $34.12 billion. For Q3 2024, the company reported $11.44 billion in revenue, a 20% increase compared to the previous year. Mounjaro and Zepbound, its blockbuster diabetes and obesity drugs, remain the driving force behind this growth. These products' market share is expected to increase in the coming years, especially as demand for weight-loss treatments surges globally.
Profitability and Margins:
Eli Lilly's profitability is strong, though it faces some pressure due to significant R&D investments and acquisitions, such as the development of Alzheimer’s treatment donanemab. Adjusted EPS for Q3 2024 was reported at $1.18, falling short of expectations but still showing robust growth compared to the previous year. The company’s gross margins remain healthy, bolstered by its patented drugs, which are shielded from generic competition in the short term.
Valuation Concerns:
Despite the positive outlook, Eli Lilly's stock is viewed as potentially overvalued by some analysts. The company’s price-to-earnings (P/E) ratio 80 is high compared to industry peers, driven by market optimism about its future growth. The stock has benefited from investor enthusiasm around its weight-loss treatments, but concerns about competition and regulatory hurdles persist. Analysts suggest that although the company has a wide economic moat due to its strong IP portfolio and market leadership, these uncertainties may pressure the stock in the medium term.
Technical Analysis
As of November 2024, Eli Lilly (LLY) shows a neutral to slightly bearish technical outlook based on multiple indicators. Overall, the technical analysis suggests a mixed outlook, with some signs of upward momentum but also resistance at higher price levels. It would be prudent for investors to watch how the stock reacts to these technical levels in the coming weeks. Short Term decline trend.
Moving Averages: A mix of buy and sell signals, with a stronger overall buy trend due to positive performance in shorter timeframes like the 10-day and 50-day moving averages. However, the stock has had some resistance around its 200-day simple and exponential moving averages, indicating that upward momentum could face challenges without a strong catalyst.
Relative Strength Index (RSI): The RSI is in a neutral to mildly bullish zone at around 57, indicating that the stock isn't overbought or oversold.
Volume and Trend Strength: The stock’s volume has been slightly underwhelming in recent days, which could signal weaker conviction behind the current trend.
Risks:
The announcement of Robert F. Kennedy Jr. as a nominee for the U.S. Secretary of Health and Human Services (HHS) has influenced the pharmaceutical industry, including companies like Eli Lilly. Kennedy, known for his skepticism of vaccines and opposition to pharmaceutical industry practices, has raised concerns about future regulatory shifts. His history of promoting anti-vaccine viewpoints and criticism of the "corporate capture" of health agencies suggests he may push for increased scrutiny and stricter regulations on pharmaceutical companies, which could affect their revenues, especially for vaccine and public health-focused sectors.
Following the announcement, several major pharma stocks, including Eli Lilly’s, experienced declines as investors reacted to potential policy shifts that Kennedy might pursue if confirmed. Concerns revolve around the possibility of increased regulatory barriers and tighter scrutiny, which could create hurdles for innovation and affect drug pricing policies. Kennedy's influence in the HHS could also signal a shift towards reducing the pharmaceutical industry’s influence on health policies, a move that investors interpret as potentially unfavorable for drug companies like Eli Lilly.
Competition: Lilly faces increasing competition from other pharmaceutical giants, especially in the obesity treatment space, where Novo Nordisk's Wegovy poses a direct challenge.
Patent Expirations: The patent for its key drug Trulicity is set to expire in 2027, which could result in revenue declines unless Lilly successfully transitions to its newer drugs.
Regulatory and Clinical Risks: With high dependence on new products like donanemab, the uncertainty surrounding these launches could affect stock performance.
Short-Term Revenue Miss and Market Sentiment: Lilly missed Q3 revenue expectations by approximately 5%, which caused a temporary decline in stock price. This miss highlights the risk of near-term volatility and the sensitivity of its high valuation to quarterly results
Market Sentiment
As of late November 2024, the market sentiment around Eli Lilly (LLY) has been a bit mixed but generally optimistic for the long term. Although there has been a price pullback recently, analysts remain largely confident about the company's future growth prospects. The stock saw a drop of 5% on November 15, 2024, but still holds a Moderate Buy consensus rating from 21 analysts. About 17 of these analysts have rated it as a "Buy," indicating a strong belief in its long-term potential.
The company’s growth is driven by promising drugs in its pipeline, particularly the Ebglyss treatment for atopic dermatitis, which could rival market leaders like Dupixent. Additionally, Eli Lilly's recent acquisitions and strong quarterly earnings suggest that it has the fundamentals to sustain growth.
The current price target for LLY is about $1,007.94, representing a potential upside of 38.5% from its current price. However, the stock is facing intense competition in the pharmaceutical space, and there are short-term risks, including its Q3 revenue miss and market volatility.
Investment thesis
Market Position and Competitive Moat:
Strong Competitive Moat: With a well-diversified portfolio and proprietary drugs, Eli Lilly holds a strong position in diabetes and obesity treatment, two areas with high barriers to entry due to patent protections and clinical efficacy requirements. Analysts generally see this as giving Lilly a competitive edge, particularly as demand for its innovative GLP-1 medications grows.
Strategic Acquisitions: Eli Lilly’s acquisitions have strengthened its pipeline and market diversification. The company's purchase of assets like Morphic Holding expands its reach into new treatment areas and helps build a broader portfolio to offset risks associated with single-drug reliance.
Long-Term Outlook:
Upside Potential: Analysts remain bullish, with a price target around $1,000, indicating potential upside due to the anticipated success of its new drugs and expanded therapeutic areas. The combination of a strong pipeline, patent protections, and growth in GLP-1 drug markets suggests substantial long-term potential for revenue and earnings growth.
Conclusion
Eli Lilly’s investment thesis in Q3 2024 hinges on its leadership in diabetes and obesity treatment, promising pipeline, and strategic market positioning. However, the stock’s high valuation and competition present near-term risks, making it suitable for investors who are comfortable with volatility but confident in Lilly’s long-term potential.
Kennedy's drug policy may impact the stock, this cautious outlook suggests that while there may not be immediate impacts, the stock may see increased volatility as investors gauge the likelihood and impact of Kennedy's potential policy changes.
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