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Proprietary Data Insights Financial Pros’ Top Drug Manufacturer Stock Searches in the Last Month
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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. The business breaks down by treatment area:
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. Financials
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. Valuation
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. Growth
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. Profitability
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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