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Bull of the Day: Eli Lilly (LLY)

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Eli Lilly ((LLY - Free Report) ) has long been a reliable name in the healthcare sector, providing stability for investors during periods of market turbulence. As a leading pharmaceutical company, it enjoys the defensive qualities of healthcare stocks, which typically perform well even in uncertain economic conditions.

In 2022, when the broader market declined by 18%, Eli Lilly delivered an impressive 34% return. However, what sets Eli Lilly apart from other defensive stocks is its explosive growth potential, particularly in the rapidly expanding GLP-1 weight-loss drug market.

Furthermore, Eli Lilly currently boasts a Zacks Rank #1 (Strong Buy) rating, reflecting upward trending earnings revisions and increasing the odds of a near-term rally. Analysts have raised earnings estimates unanimously and across timeframes by as much as 23.4% over the last two months.

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LLY is Dominating the Weight-Loss Drug Market

The GLP-1 drug market, which includes treatments for diabetes and obesity, is forecasted to grow at an astonishing rate of 20% annually through 2030. Eli Lilly’s Mounjaro (tirzepatide) has already established itself as a blockbuster drug, outperforming market expectations in both efficacy and sales. With obesity rates rising globally and increased healthcare awareness, the demand for weight-loss drugs like Mounjaro is expected to surge in the coming years.

The company’s success in this space has been a key driver of its financial performance. In Q2 2024, Eli Lilly reported a 36% increase in revenue, driven largely by Mounjaro and other key drugs like Zepbound and Verzenio. Earnings per share (EPS) for the quarter surged 68% year-over-year, exceeding analysts’ estimates by 42%. This strong performance led Eli Lilly to raise its full-year revenue guidance by $3 billion, highlighting its confidence in sustained growth.

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A Robust Pipeline and More Growth on the Horizon

Beyond weight-loss treatments, Eli Lilly boasts a rich pipeline of drugs that positions it for continued growth. Notably, the company recently received FDA approval for Kisunla, a treatment for Alzheimer’s disease, and Jaypirca for mantle cell lymphoma in Japan.

Positive clinical trial results for tirzepatide in treating heart failure and obesity further underscore the potential of its pipeline. These developments in key therapeutic areas such as Alzheimer’s, oncology, and autoimmune disorders add more growth levers for Eli Lilly moving forward.

With revenue projected to grow 23% this year and EPS forecasted to increase by 33.3% annually over the next three to five years, Eli Lilly’s growth story is far from over. Analysts expect the company to continue delivering strong results as it expands its offerings and capitalizes on its leadership in the GLP-1 space.

Valuation Justified by Growth Prospects

At first glance, Eli Lilly’s valuation—currently trading at 38.3x next year’s earnings—might appear steep. However, considering its dominant position in a rapidly growing market, the elevated valuation may be justified. The combination of robust earnings growth, a rich drug pipeline, and strong market leadership justifies its premium valuation.

Can Eli Lilly Join the $1 Trillion Market Cap Club?

Currently, Eli Lilly’s market cap sits at approximately $535 billion. However, given the company’s growth trajectory, it is not far-fetched to imagine LLY reaching a $1 trillion market cap within the next five years.

With the GLP-1 market expected to hit $133 billion by 2030 and Eli Lilly holding a dominant position, the stock has the potential to double in value. If the company maintains its current sales growth and sales multiple, it could indeed join the exclusive trillion-dollar club.

Eli Lilly is a Defensive Play with Explosive Upside

For investors seeking a blend of stability and growth, Eli Lilly offers an attractive opportunity. Its defensive characteristics make it a solid choice during times of market volatility, while its exposure to the booming GLP-1 market and a strong pipeline of innovative drugs provide significant upside potential. With the GLP-1 market set to expand and Eli Lilly well-positioned to maintain its leadership, the stock is poised for long-term growth.


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