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

Eli Lilly LLY is set to release its first-quarter earnings report on May 1. Here’s Morningstar’s take on what to look for in 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

Earnings Release Date

Thursday, May 1, before the start of trading

What to Watch for in Eli Lilly’s Q1 Earnings

• With recent strong phase 3 data in diabetes giving us reassurance on orforglipron’s safety profile, we are waiting for phase 3 data in obesity in the third quarter to confirm exactly how effective this new pill could be. This will also help us size up the competition against Novo’s oral version of its approved drug semaglutide, which could launch a few months ahead of orforglipron. We think Novo’s brand awareness and first-to-market positioning will help it maintain solid growth, but we also see Lilly’s product as easier to manufacture, which could allow it to expand its global opportunity even further.
• The FDA has deemed shortages of both Lilly and Novo’s obesity therapies to be over, and any commentary on how sustainable that is will be important. Compounders will stop being able to provide most compounded versions of Novo’s Wegovy in mid-May, which could lead to a rise in demand for branded products from both firms. We’re assuming that Lilly’s 2025 guidance for revenue (32% revenue growth at the midpoint) incorporates more than 50% growth for its GLP-1-based therapies, which includes higher prescription growth and a continuing single-digit pricing headwind—without supply shortages.
• With sales of compounded products likely shrinking dramatically, more patients who aren’t currently covered for obesity drugs through their insurance could wind up buying obesity drugs through LillyDirect or NovoCare. Any commentary on how significant a part of overall sales this is becoming would be helpful, as this would likely also have some bearing on how recession-proof demand for obesity drugs might be. Most healthcare products and services, including most prescribed drugs, have pretty inelastic demand, meaning a recession has minimal impact on whether a patient seeks care.
• More marketing to patients could help Lilly gain share faster: Any discussion of how Lilly’s marketing efforts are going, to expand patient awareness of Zepbound and Mounjaro (relative to first-to-market Ozempic and Wegovy), would be helpful—we still think Lilly has some ground to make up here, and the timing is interesting, as HHS Secretary Robert Kennedy could work with the FDA to try to ban DTC drug advertising. That said, we think Lilly will gain 5 percentage points of market share in the global GLP-1 market against Novo in 2025.
• Amylin data could further solidify Lilly’s leadership in obesity. While Novo and Lilly should both see strong growth in the obesity and diabetes markets, Lilly is poised to see faster growth as its pipeline moves toward the market. One area where Novo seems to have an edge is in amylin combination therapies—incorporating this new mechanism for weight loss. It has both cagrisema (ongoing phase 3 program) and amycretin (potentially entering phase 3 this year). However, Lilly’s eloralintide should have phase 2 data in the third quarter, which could give it access to this type of therapy as well, for use by itself or perhaps in combination with other Lilly drugs.
• Lilly has approval for Zepbound in sleep apnea, which should give it access to patients covered by Medicare (obesity drugs are generally not covered by Medicare). In addition, Lilly has talked about progressing its obesity drugs and drug candidates in new areas like liver disease, hypertension, pain, and inflammation. We’re looking forward to more information about the firm’s strategy here and when we could see clinical data.

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, after 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. 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.

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 for 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 Jacqueline Walker.