After Earnings, Is Eli Lilly Stock a Buy, a Sell, or Fairly Valued?

Eli Lilly LLY released its first-quarter earnings report on May 1. Here’s Morningstar’s take on Eli Lilly’s earnings and stock.

Key Morningstar Metrics for Eli Lilly

• Fair Value Estimate: $650.00
• Morningstar Rating: ★★
• Economic Moat: Wide
• Morningstar Uncertainty Rating: High

What We Thought of Eli Lilly’s Earnings

Lilly’s first-quarter revenue grew 45% as combined sales for Mounjaro (diabetes) and Zepbound (obesity) rose dramatically to reach $6.2 billion, up year over year from $2.3 billion. Separately, Novo Nordisk NVO announced Wegovy’s preferred status as of July 1 with pharmacy benefit manager CVS Health CVS.

Why it matters: Lilly met financial expectations and is on track to meet 2025 guidance (apart from acquisition charges for a breast cancer drug in-licensed in the quarter), but the CVS announcement highlights concerns that Novo could remain a strong commercial competitor in obesity.

• During the first quarter, Zepbound showed even stronger share gains than we had expected, with US prescription share up from the end of the fourth quarter by 13 percentage points to 60%. We think Mounjaro/Zepbound sales could surpass $30 billion this year (83% growth).
• We think price competition with Novo and others means non-GAAP performance margin (similar to operating margin) could only improve another 400 basis points in the long run, from 42.6% in the quarter to 46.7% by 2030.

The bottom line: We’re maintaining our $650 fair value estimate for wide-moat Lilly following solid results that show strong share gains, but we’re cautious on pricing, even before the entry of a third competitor. We think the market was assuming more stable pricing and greater Lilly dominance.

• We expect Lilly to continue to gain market share over Novo this year as part of a global $75 billion GLP-1 market, with potential for the market to reach $200 billion by 2031.
• We think upcoming orforglipron data in obesity in the third quarter will help clarify how competitive the molecule will be in the US market, where high efficacy injectables are entrenched and Novo also hopes to launch an oral version of Wegovy in 2026.

Our Valuation of Eli Lilly Stock and the Outlook Going Forward

• Momentum had shifted in favor of Lilly and against Novo, continuing through the announcement of the first positive phase 3 data for Lilly’s key pipeline drug, orforglipron.
• CVS’s formulary now favors Novo’s Wegovy, signaling a shift that benefits Novo. Novo has also launched NovoCare, an online direct-to-patient pharmacy intended to compete with Lilly’s more established LillyDirect platform, showing Novo’s active efforts to preserve its share in the potential $200 billion market.
• Despite these moves, Lilly shares still seem to reflect too much optimism—not just about ongoing market share gains, but also about a potentially unrealistic expectation of stable pricing, especially given that Novo’s CVS agreement suggests further market discounting.

Fair Value Estimate for Eli Lilly

With its 2-star rating, we believe Lilly stock is overvalued compared with our long-term fair value estimate of $650 per share, an increase from $620 as a result of raising our assumptions for potential orforglipron sales. This was slightly countered by lower assumed sales for Alzheimer’s drug Kisunla due to the slower commercialization ramp seen with Biogen and Eisai’s Leqembi.

Mounjaro and Zepbound are supporting solid margin expansion for Lilly based on strong pricing power. Our assumptions for overall biopharma GLP-1 sales in 2031 surpass $200 billion across diabetes, obesity, and overweight patients with Lilly capturing $80 billion of the market. We think more than 25% of obese adults and 15% of overweight adults in the US will receive treatment in 10 years, with the vast majority receiving branded GLP-1 therapies. We think US prices could fall substantially as volumes increase (in line with payer contracts) and as new entrants launch (beginning in 2026-27), with average net prices falling from roughly $7,000 annually to $3,000 in 10 years.

Read more about Eli Lilly’s fair value estimate.

Economic Moat Rating

Patents, economies of scale, and a powerful distribution network support Eli Lilly’s wide moat. Lilly’s patent-protected drugs carry strong pricing power, which enables the firm to generate returns on invested capital in excess of its cost of capital. Further, the patents give the company time to develop the next generation of drugs before generic competition arises. Lilly’s diversified product portfolio means the company’s top drugs represent only a moderate amount of total sales, although the top drug (in 2024), Mounjaro/Zepbound, represented 37% of total sales and is poised to grow north of 50% of sales starting in 2025. We expect increasing dependence on Lilly’s new GLP-1 drugs (including Mounjaro and Zepbound) will eventually mean close to two thirds of the firm’s sales will be from this class of drugs by 2032. However, Mounjaro and Zepbound have patent protection until at least 2036, and multiple Lilly pipeline programs are in progress behind them in obesity, obesity-related indications, and brain health.

Read more about Eli Lilly’s economic moat.

Financial Strength

With strong cash flows derived from a stable and diversified product portfolio, Eli Lilly remains on solid financial footing. We expect the company’s debt/EBITDA level to fall from close to 1.9 times in 2022 to below 1 times by 2025. With its strong growth prospects, we don’t expect Lilly will need to make any major acquisitions to drive growth. Nevertheless, we expect tuck-in acquisitions will augment growth for the firm over the next decade.

Read more about Eli Lilly’s financial strength.

Risk and Uncertainty

We are maintaining Eli Lilly’s Uncertainty Rating of High based on a high variable outcome for several key drug launches. Diabetes and weight loss drugs Mounjaro/Zepbound are likely to develop into major new drugs. However, the cone of uncertainty for the drugs is higher, as several variables are affecting the sales potential, especially for the weight loss indication, including level of insurance coverage and pricing.

Alzheimer’s drug Kisunla holds the potential to become another major new drug, but its outlook also has a wide range of outcomes, since the market potential could be very large but the visibility on market uptake is less clear. With Kisunla and Mounjaro/Zepbound representing close to two thirds of Lilly’s projected sales by the end of the next 10 years, we believe a High Uncertainty Rating is appropriate.

Read more about Eli Lilly’s risk and uncertainty.

LLY Bulls Say

• Lilly’s strong leadership in weight-loss drugs should drive industry-leading growth with approved drugs and well-positioned next-generation weight-loss drugs in the pipeline.
• Lilly’s cancer drug Verzenio reported strong data in early-stage breast cancer, opening up the strong potential in this multi-billion-dollar market.
• Lilly is developing a new Alzheimer’s drug (Kisunla/donanemab) that could become a major blockbuster, especially since few treatment options exist for the disease.

LLY Bears Say

• The risks to success for Alzheimer’s drug Kisunla remain high because of bottlenecks in patient diagnosis, required scans and monitoring, as well as competition.
• Several of Lilly’s next-generation cardiometabolic drugs could lead to cannibalization of current approved Lilly drugs.
• Competition to weight-loss drug Zepbound could significantly increase over the next three years, from both established competitor Novo Nordisk and new entrants.

This article was compiled by Gautami Thombare.