Shares of Eli Lilly (LLY) have experienced a significant surge this year, and the company’s upcoming earnings report has the potential to push the stock even higher. The stock has already risen by approximately 23% in 2023, driven by positive trial results for its Alzheimer’s drug, donanemab, and the increasing success of its weight-loss drugs, Mounjaro and Jardiance. In fact, the impressive performance of these weight-loss drugs has led analysts to raise their 2023 earnings-per-share estimates by about 12% so far this year.
However, with great expectations often comes the risk of falling short. Analysts are anticipating sales of $7.58 billion, representing a robust 17% year-over-year growth. Earnings per share are projected to reach $1.98, indicating a substantial 58% increase as a result of expanding profit margins. These estimates might prove challenging for Eli Lilly to surpass.
While the Alzheimer’s drug, donanemab, holds promise for the future, it is unlikely to contribute significantly to earnings at the present moment. According to Grand View Research, the total Alzheimer’s market, which Eli Lilly would share with Biogen’s Leqembi, could be worth approximately $14 billion within a decade. However, Eli Lilly is still awaiting approval from the Food and Drug Administration for donanemab, a decision expected by year-end. As a result, the company may not have any groundbreaking updates to report regarding Alzheimer’s during the earnings call.
Instead, the focus for this quarter will likely be on Eli Lilly’s obesity drugs. Sales of Mounjaro and Jardiance are currently fueling most of the company’s growth. Analysts predict that these drugs will experience annual growth of 40%, reaching nearly $17 billion by the end of 2026. This growth will contribute to an overall company sales increase of approximately 18% annually, amounting to $52 billion over the same period. Expectations for the quarter indicate that Jardiance will report sales of $627 million, while Mounjaro is expected to reach $740 million. Therefore, a strong earnings report driven by robust sales of these drugs could lead to further stock gains, despite concerns about valuation.
Although Eli Lilly’s stock is currently trading at approximately 42 times forward earnings estimates, its price-to-earnings-growth (PEG) ratio of 1.3 based on expected annual earnings growth of around 31% over the next three years remains lower than the company’s five-year average of about 1.8 times. This valuation suggests that as long as the market maintains or increases its confidence in the company’s profit growth, investors will continue to bid the stock higher.
It is important that Eli Lilly delivers results that meet or exceed expectations, particularly in the realm of its obesity drugs, to maintain the positive trajectory of its stock. By doing so, the company can reinforce market confidence and potentially drive further growth. However, it is crucial to remember that beating market expectations may prove challenging. As a result, investors should carefully evaluate the forthcoming earnings report to make informed decisions regarding their investments.
Source: Barron’s
