Why Did Eli Lilly Stock Fall 6%?

Eli Lilly stock (NYSE: LLY) fell over 6% on Wednesday, October 30, after it posted downbeat results. The company reported revenue of $11.4 billion and adjusted earnings of $1.18 per share, well below the consensus estimates of $12.1 billion and $1.45, respectively. In this note, we discuss key takeaways from its recent results, stock performance, and valuation. Separately, check out why did SNAP stock rise 10%.

How Did Eli Lilly Fare In Q3?

Eli Lilly’s revenue of $11.4 billion in Q3 was up 20% y-o-y, driven by a 2x rise in Mounjaro sales to $3.1 billion, and rising demand for its obesity drug – Zepbound – which garnered $1.3 billion. However, both of these drugs fell short of our estimates of $3.5 billion and $1.5 billion, respectively. Verzenio took in $1.4 billion in sales, slightly better than our estimate of $1.3 billion. The inventory decreases for the wholesale channels was the key factor behind the miss for Zepbound. The company has been facing supply woes after a surge in demand for its obesity treatment. To address this issue, it has invested in expanding the production capacity.

Eli Lilly reported a 50 bps y-o-y rise in gross margin to 82.2% in Q3. Higher revenues and margin expansion led to a stellar 12x y-o-y rise in the bottom line to $1.18 on an adjusted basis. The prior-year-quarter earnings figure was impacted by $3 billion IPR&D charges recorded by the company, related to the acquisitions of DICE Therapeutics, Versanis Bio, and Emergence Therapeutics. Even in Q3 2024, Eli Lilly recorded $2.8 billion IPR&D charges related to the acquisition of Morphic Holding.

Looking forward, Eli Lilly lowered its sales outlook to $45.7 billion and adjusted earnings of $13.27, at the mid-point of the provided range. This compares with its prior guidance of $46 billion and $16.35, respectively. This can be attributed to the supply issues impacting sales and the IPR&D charge in Q3 weighing on the overall earnings growth this year.

What Does This Mean For LLY Stock?

A downbeat result and cut in full-year guidance didn’t bode well with the investors, evident from a 6% fall in its stock post the results’ announcement. However, we think that the recent fall in the stock can be seen as a buying opportunity for robust long-term gains. The cut in guidance and the downbeat results appear to be unrelated to the demand, which remains high for its obesity drug. The $1,025 average of analysts’ price estimates reflects over 20% upside from its current levels of around $850.

LLY has outperformed the broader indices, with 46% gains this year, versus a 22% rise for the S&P 500 index. Admirably, LLY stock has generated better returns than 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. Similarly, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is less volatile, and it 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.

While LLY stock looks like it can 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 10/31/2024
[2] Cumulative total returns since the end of 2016

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