What’s Next For Eli Lilly Stock After A Solid Q2?

Eli Lilly stock (NYSE: LLY) recently reported its Q2 results, with revenues and earnings exceeding the street expectations. The pharmaceutical giant reported sales of $11.3 billion and adjusted earnings of $3.92 per share, compared to the consensus estimates of $9.9 billion and $2.60, respectively. The company also raised its full-year outlook, and the stock rallied over 15% since it reported the Q2 numbers. In this note, we discuss Eli Lilly’s stock performance, key takeaways from its recent results, and valuation.

Firstly, let us look at its stock performance. LLY stock has seen extremely strong gains of 455% from levels of $160 in early January 2021 to around $890 now, vs. an increase of about 40% for the S&P 500 over this period. Admirably, LLY stock has outperformed the broader market in each of the last 3 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? From a valuation perspective, LLY stock looks appropriately priced, but the massive demand for Zepbound and Mounjaro may continue to bolster its stock.

Looking at Q2, Eli Lilly’s revenue of $11.3 billion reflected a solid 36% y-o-y growth. This can be attributed to market share gains for some of its drugs, including Mounjaro, Verzenio, and Zepbound. Mounjaro saw a massive 3x surge in sales to $3.1 billion. Verzenio sales were also up a solid 44% y-o-y to $1.3 billion. Zepbound sales stood at $1.2 billion. Eli Lilly also saw its adjusted gross margin expand by 220 bps to 82.0% in Q2. Higher revenues and margin expansion resulted in an 86% growth in adjusted earnings to $3.92 per share.

The overall growth was driven by Mounjaro’s launch outside of the U.S. and an increase in overall production. This trend is expected to continue in the near term. Eli Lilly raised its full-year outlook and now expects its sales to be between $45.4 billion and $46.6 billion, reflecting an increase of $3 billion from its prior outlook. It expects its adjusted earnings to be in the range of $16.10 and $16.60, compared to its previous outlook of $13.50 to $14 per share. Overall, Eli Lilly posted a solid Q2 and that also reflects in its stock price move. However, we think it’s appropriately valued at levels of over $900.

While LLY stock looks appropriately priced, 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 8/12/2024
[2] Cumulative total returns since the end of 2016

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