Will The Supply Shortage Weigh On Eli Lilly’s Q2?

Eli Lilly stock (NYSE: LLY) will report its Q2 results on Thursday, August 8. The pharmaceutical giant is expected to garner $10 billion in sales and $2.70 in adjusted earnings per share, per the consensus estimates. All eyes will be on Eli Lilly’s diabetes drug – Mounjaro – and its weight-loss drug – Zepbound. In this note, we discuss some of the trends that are likely to drive Eli Lilly’s results.

Firstly, let us look at its stock performance. LLY stock has seen extremely strong gains of 405% from levels of $160 in early January 2021 to around $805 now, vs. an increase of about 45% for the S&P 500 over this period. Admirably, LLY stock has outperformed the broader market in each of the last three years. Returns for the stock were 66% in 2021, 34% in 2022, and 61% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023.

In fact, consistently beating the S&P 500 — in good times and bad — has been difficult over recent years for individual stocks; for other heavyweights in the Health Care sector, including UNH, JNJ, and ABBV, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could LLY see a strong jump? Eli Lilly’s valuation is largely dependent on future pipeline potential rather than its current earnings, and despite its large move, the $925 average of analysts’ price estimates is over 15% above its current market price of around $805.

Looking at the previous quarter, Eli Lilly’s revenue of $8.8 billion reflected a solid 26% y-o-y growth. This can be attributed to market share gains for some of its drugs, including Mounjaro, Verzenio, and Jardiance. Mounjaro saw a massive 3.2x surge in sales to $1.8 billion. Verzenio sales were also up a solid 40% y-o-y to $1.1 billion. Zepbound sales stood at $517 million. Eli Lilly also saw its adjusted gross margin expand by 410 bps to 82.5% in Q1. Higher revenues and margin expansion resulted in a 59% growth in adjusted earnings to $2.58 per share.

Coming to the latest quarter, the company’s relatively new products should continue to drive the sales growth. Eli Lilly is expected to post over 75% y-o-y rise in Mounjaro sales to around $1.8 billion. Verzenio sales should also see strong growth to levels of over $1 billion. Zepbound will likely see its sales impacted by shortages in supply. Eli Lilly expects its 2024 sales to be in the range of $42.4 billion and $43.6 billion, and its earnings to be in the range of $13.50 and $14.00 on a per share and adjusted basis. This marks a significant uptick from its sales of $34.1 billion and adjusted EPS of $6.32 in 2023.

Overall, Eli Lilly appears to be set to deliver another strong quarter, led by its diabetes and obesity drugs. That said, the investors should consider that sales of some drugs will be impacted by supply shortages during the quarter. The U.S. FDA recently stated that all doses of Eli Lilly’s weight-loss drugs are now available, likely resulting in a better sales picture in Q3. ^[1]

While LLY stock may see higher levels, it is helpful to see how Eli Lilly peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

[1] Returns as of 8/5/2024
[2] Cumulative total returns since the end of 2016

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1. US FDA says all doses of Lilly’s weight-loss and diabetes drug are now available, Bhanvi Satija and Sneha S K, August 3, 2024, Reuters [↩]