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

Eli Lilly LLY is set to release its fourth-quarter 2024 earnings report on Feb. 6. Here’s Morningstar’s take on what to look for in Lilly’s earnings and stock.

Key Morningstar Metrics for Eli Lilly

• Fair Value Estimate: $580.00
• Morningstar Rating: ★★
• Economic Moat: Wide
• Morningstar Uncertainty Rating: High

Earnings Release Date

• Thursday, Feb. 6, 2025, after the close of trading

What to Watch for in Eli Lilly’s Q4 Earnings

• We already know how fast Mounjaro and Zepbound (the tirzepatide molecule) grew in 2024 (it roughly tripled from around $5 billion to around $16 billion), and we have Lilly’s overall topline guidance for 2025 (32% at the midpoint). But it will be interesting to hear management’s comments on how fast tirzepatide can grow in 2025. We think sales could nearly double to about $30 billion as it expands globally, cannibalizes Trulicity, and takes share from Novo Nordisk’s NVO semaglutide (Wegovy and Ozempic).
• We’re looking for any indication of what margin growth could look like over the next few years, as topline growth will likely stay strong. We think non-GAAP operating margins could grow to the mid-40s.
• Commentary on internal vs. external sourcing of future pipeline opportunities. Lilly has been steadily making small asset acquisitions that weigh on the income statement, but we think the firm’s existing pipeline will keep their hands full as it advances into more phase 3 trials.
• Comments on marketing costs for tirzepatide. How much will Lilly need to spend to promote the drug to continue gaining share from Novo? How will this affect margins?
• Progress with the early pipeline. Novo recently had strong (but early) data for its GLP-1/amylin drug amycretin, so any news on the advancement of Lilly’s amylin-targeting pipeline will be interesting. We expect phase 2 obesity data for a new drug, eloranlitide, this year/
• The key focus for the year will be phase 3 data for Lilly’s oral obesity drug orforglipron, coming in mid-2025. A win here could give Lilly the upper hand over Novo for GLP-1 market growth beyond 2025.

Fair Value Estimate for Eli Lilly

With its 2-star rating, we believe Eli Lilly’s stock is over-valued compared to our long-term fair value estimate.

We are maintaining our Eli Lilly fair value estimate at $580. 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 close to $75 billion of the market. We think more than 25% of obese adults and 15% of overweight adults in the United States 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 Lilly’s wide moat. The firm’s patent-protected drugs carry strong pricing power, letting it generate returns on invested capital over 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, with the largest drug, Trulicity, representing almost 25% of total sales, which sets up manageable cash flow declines as new products mitigate the generic competition. However, we believe 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.

Read more about Eli Lilly’s economic moat.

Financial Strength

With strong cash flows 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 close to 1.3 times by 2024, and for its debt/capital ratio to go from almost 60% in 2022 to 40% in 2025 as cash flows accrue. 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 over the next decade.

Read more about Eli Lilly’s financial strength.

Risk and Uncertainty

We maintain Eli Lilly’s High Uncertainty Rating, based on a highly variable outcome for several key drug launches. Mounjaro and Zepbound are likely to develop into major new drugs. However, their cone of uncertainty is higher, since several variables affect the sales potential, especially for the weight-loss indication, including level of insurance coverage and pricing. Alzheimer’s drug donanemab 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 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. Most big biopharma firms tend to have Medium Uncertainty Ratings. Beyond product-specific uncertainties, Lilly faces tough competition from generics manufacturers and brand-name drugmakers. The company encounters considerable regulatory and legal risks, including product approvals, patent challenges, and liability lawsuits.

Read more about Eli Lilly’s risk and uncertainty.

Eli Lilly Bulls Say

• Lilly’s strong leadership in weight loss should drive industry-leading growth with both its approved drugs and the well-positioned next-generation drugs in its pipeline
• Lilly’s cancer drug Verzenio reported strong data in early-stage breast cancer, opening up the potential to be the first CDK4/6 drug to launch in this multibillion-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.

Eli Lilly Bears Say

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

This article was compiled by Aman Dagra.