Experts #1 Pharma Stock to Start 2024 - InvestingChannel

Experts #1 Pharma Stock to Start 2024

Proprietary Data Insights

Financial Pros’ Top Drug Manufacturer Stock Searches in the Last Month

#1LLYEli Lilly122
#2BMYBristol-Myers Squibb100
#4GILDGilead Sciences40
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Experts #1 Pharma Stock to Start 2024

Every one of us knows someone touched by diabetes, obesity, or  Alzheimer’s. 

Combined, Americans spend almost a trillion dollars annually fighting these conditions.

No company has benefited more from this than Eli Lilly (LLY).

The pharmaceutical giant developed a robust pipeline that includes new treatments for each condition, propelling shares higher by almost 30% in 2024 and over 140% in the past year.

Financial experts took notice, searching out the stock more than any other biotech or pharmaceutical company in February. And it was also one of their top searches in 2023.

However, their search history has notably gotten more cautious, and we wondered if they feel the stock’s meteoric rise is overcooked.

Let’s find out.

Eli Lilly’s Business

Lilly operates at the intersection of cutting-edge science and compassionate care, delivering various pharmaceutical solutions.
Known for its pioneering work in diabetes care, Lilly has expanded its influence across multiple therapeutic areas with a commitment to improving patient outcomes with cutting-edge treatments and a patient-centric approach.

The business breaks down by treatment area:

  • Diabetes (57.6% of total revenues) – A cornerstone of Lilly’s portfolio, this segment includes trailblazing injectable and oral medications that significantly improve the lives of those with diabetes and weight loss medication.
  • Immunology (9.0% of total revenues) – This segment comprises innovative treatments for autoimmune diseases, reflecting Lilly’s dedication to addressing unmet medical needs in chronic inflammatory conditions.
  • Neuroscience (8.4% of total revenues) – Encompasses medications for psychiatric disorders, neurodegeneration, and pain management.
  • Oncology (19.5% of total revenues) – This segment delivers targeted therapies reshaping the oncological (cancer) landscape.
  • Other Products (5.5% of total revenues) – This diverse category includes additional medications and health solutions that further illustrate Lilly’s broad reach in healthcare.

Lilly’s focus on diabetes (Mounjaro) and weight loss (Zepound) is expected to pay big dividends.


Source: Eli Lilly Investor Relations

Its product portfolio is growing so quickly that management expects revenues to increase 20% in 2024 (29% excluding divestitures).

Behind that, Lilly’s $8.1 billion R&D spend has filled its pipeline with a treasure trove of possible treatments.


Source: Eli Lilly Investor Relations

Lilly faces a minor patent cliff with Taltz and Truliciy in 2028 and 2027, representing 29% of the company’s 2023 revenues, respectively.

However, analysts expect current growth and new product sales to far exceed any decline when those two drugs go generic.



Source: Stock Analysis

Eli Lilly’s growth really took off in 2021, with revenues climbing double digits. 

Though they faced a minor setback in 2022, management expects sales to increase 20% overall in 2024.

Margins have declined slightly as the company focused on launching and rolling out new products.

That’s not expected to change in the near future as Lilly continues to focus on building its pipeline.

However, free cash flow should return to normal as 2023 divestitures are one-time items.



Source: Seeking Alpha

Now, we get to the big question mark – Lilly’s valuation.

Compared ti its peers, it’s not in the same universe.

Pfizer (PFE) trades at 72.7x, trailing 12-month but 17.3x forward earnings.

Lilly is at 131.9x and 63.1x, respectively.

In fact, Lilly’s 162.4x cash is over 9x higher than Amgen’s (AMGN).

However, Lilly trades at 55.6x forward operating cash flow, which is a bit more reasonable.



Source: Seeking Alpha

Does Lilly’s growth justify its valuation?

It’s certainly far ahead of its peers.

Bristol Myers Squibb (BMY) expects just 0.25% revenue growth in 2024. Gilead (GILD) is looking at 0.96% for the same period.

At least Amgen believes it can hold onto its high single-digit growth.

And for the most part, Lilly’s profits have risen proportionally with its revenues.



Source: Seeking Alpha

At the moment, Lilly’s margins aren’t the best, but they’re still pretty solid.

Ideally, its EBIT and EBITDA margins would improve as its new products mature. However, that may be a few years down the road.

Our Opinion 6/10

There’s a good argument to be made that Eli Lilly will grow in its valuation within a few years.

And its patent protection doesn’t come under fire until 2027.

So, +20% growth every year is reasonable.

However, the forward cash estimates are a bit generous.

For us, this stock would become interesting back down around $600.

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