Investing in the biotech sector can yield substantial profits, as exemplified by success stories like Moderna (NASDAQ:MRNA). In this context, we turn our attention to Eli Lilly and Company (NYSE:LLY), a drugmaker with a diverse product portfolio addressing critical conditions such as cancer, autoimmune diseases, obesity, diabetes, Alzheimer’s, and skin diseases.

Recent market attention has been drawn to Lilly’s weight-loss drugs, propelling its stock by 59% in 2023, outpacing the S&P 500 Index’s gain of 25%. This article explores the potential of Eli Lilly as a biotech stock investment in 2024.

The Bull Case For Eli Lilly

Financial Performance: Eli Lilly has demonstrated robust financial performance in recent years, marked by consistent revenue streams and prudent financial management.

Diversification: The company’s diversified portfolio helps mitigate potential revenue declines stemming from industry challenges like patent expirations and competition.

Weight-Loss Drugs: Notably, Eli Lilly’s weight-loss drugs, Mounjaro and Zepbound, have garnered significant attention. These drugs compete with Novo Nordisk’s (NVO) offerings and are predicted to dominate the market, with global sales potentially exceeding $5 billion.

Revenue Growth: In the third quarter of 2023, Lilly’s total revenue increased by 37%, primarily driven by key products like Mounjaro, Verzenio, and Jardiance, contributing $1.44 billion in new product revenue.

Acquisitions: The acquisition of POINT Biopharma Global in December adds promising radioligand therapies for cancer treatment to Lilly’s diverse product portfolio.

More Green Flags

Financial Strength: Eli Lilly boasts $2.4 billion in cash and cash equivalents, facilitating pipeline development and potential future acquisitions.

Dividend Payout: While having a relatively low yield at 0.84%, Eli Lilly is a consistent dividend payer, having increased dividends for the past 10 consecutive years. The recent 15% hike in the quarterly dividend to $1.13 per share in Q1 2023 underscores the company’s commitment to shareholder returns.

Analyst and Market Confidence: Bank of America and Argus have named Eli Lilly as their top pharma pick for 2024, reflecting market confidence. Analysts, on average, maintain a “strong buy” rating for the stock.

Considerations

Debt-to-Equity Ratio: A notable red flag is Eli Lilly’s relatively high debt-to-equity ratio of 1.6. While not uncommon for biotech companies, investors should monitor debt management and dividend commitments.

Future Outlook

Earnings and Revenue Projections: Management anticipates adjusted EPS for the full year to be in the $6.50 to $6.70 range, with analysts’ estimates aligning. Further projections suggest an 87.1% increase in earnings to $12.30 per share in 2024, accompanied by a 15.7% year-on-year revenue growth to $38.9 billion.

Wall Street Sentiment

Analyst Ratings: Out of 20 analysts covering Eli Lilly, 17 have a “strong buy” rating, one has a “moderate buy,” and two have a “hold” rating.

Target Price: Eli Lilly is currently trading close to its mean target price of $633.50, indicating a 2.5% potential upside. The high target price of $727 suggests a more substantial 14.8% potential upside in the next 12 months.

The Verdict

In conclusion, Eli Lilly, with its history of innovation, diverse portfolio, and commitment to research and development (R&D), presents an appealing investment opportunity in the pharma sector. Despite trading at a relatively high multiple of 50 times forward 2024 earnings, the company’s extensive pipeline and successful products position it for potential long-term growth. While the current valuation may seem lofty, Eli Lilly’s growth potential extends beyond 2024, making it a compelling buy.

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