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

Eli Lilly is set to release its second-quarter 2025 earnings report. 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, Aug. 7, before the start of trading

What to Watch for in Eli Lilly’s Q2 Earnings

• Our fair value estimate stands at $650 per share, which includes roughly $20 billion annually by 2034 for key pipeline drug orforglipron, which is a pill could be approved to treat obesity in late 2026 and in diabetes and other indications in 2027 and beyond. The news that this drug was safe and effective in a phase 3 trial for diabetes sent shares up significantly in mid-April, although first-quarter results saw shares fall despite strong results, mostly due to fears that Novo Nordisk will be a stronger than expected competitor due to a new agreement (in effect as of July 1) with pharmacy benefit manager CVS. Essentially, we think Novo is offering steeper discounts to try to edge Lilly out of some of the insured patient market for GLP-1 therapies.
• While we’re enthusiastic about Lilly’s portfolio and pipeline, we think valuation is still ahead of the firm’s long-term value of potential cash flows.
• We are still watching for phase 3 obesity data for the key oral drug orforglipron, expected sometime in the third quarter. While the diabetes data was reassuring on safety, we still need data to confirm exactly how effective this new pill could be in the obesity market. 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.
• Are compounded GLP-1 drugs dragging on Lilly in addition to Novo? The grace period for compounders to manufacture Novo’s Wegovy expired on May 22, which we expected to lead to a rise in demand for branded products from both Lilly and Novo. However, Novo’s lowered 2025 guidance (as of July 29) points to a very strong and persistent market for compounded drugs, which are still being sold in a legal grey area as personalized therapies. We’re assuming that Lilly will meet its 2025 guidance for revenue (our 31% revenue growth assumption is quite close to guidance for 32% revenue growth at the midpoint), as we think Novo is particularly affected by compounders (semaglutide compounding is much more frequent because of the longer semaglutide shortage).
• We know Lilly is gaining share in the GLP-1 market over Novo, but how well is it holding onto price? Prescription data shows Lilly has gained several percentage points of market share over Novo this year. However, with the expansion of cash pay customers and efforts to compete with compounded product and Novo’s semaglutide, we’re expecting Lilly to continue to see some erosion in price.
• Are more of Lilly’s Zepbound sales coming from the cash pay business than in the first quarter? Direct-to-consumer sales are a growing trend in the pharma industry, and self-pay vials were 25% of new Zepbound prescriptions in the first quarter. Continued commentary on the importance of this channel (for patients without insurance coverage) could 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 that a recession has minimal impact on whether a patient seeks care. Obesity drugs have mixed coverage by insurers, so they could be more vulnerable to sales declines during a recession if self-pay options grow significantly.
• Amylin data later this year could further solidify Lilly’s leadership in obesity. While both 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 has had an edge is in amylin combination therapies, incorporating this new mechanism for weight loss. It has both cagrisema (ongoing phase 3 program) and amycretin (entering phase 3 in early 2026). However, Lilly’s eloralintide should have phase 2 data later this year, which could give it access to this type of therapy as well, for use by itself or in combination with Zepbound.
• New indications could start contributing more significantly to GLP-1 sales. 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 is progressing its obesity drug candidate orforglipron in new areas. For example, hypertension data is due in late 2027.

Fair Value Estimate for Eli Lilly

With its 2-star rating, we believe Eli Lilly’s stock is overvalued compared with our long-term fair value estimate of $650 per share. In aggregate, the company looks well positioned to drive top-line growth. We project a 34% top-line growth rate in 2025, with double-digit growth possible until the end of the decade. We expect diabetes and weight loss drugs Mounjaro, Zepbound, and Jardiance, along with cancer drug Verzenio and immunology drug Taltz, to remain important drivers for cash flows. Also, Alzheimer’s drug Kisunla should ramp to meaningful sales following the drug’s recent launch.

Lilly has already significantly expanded operating margins, and we expect operating margins to increase from the low-s to the mid-s over the next few years. We assume a 5% EBI growth rate between our 10-year explicit forecast and the perpetuity stage of our model, which accounts for Lilly’s solid innovation, offset somewhat by tirzepatide generic competition during this period (2036). We estimate a weighted cost of capital for Lilly at 7.3%, in line with the peer group.

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, 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.

Lilly’s operating structure allows for cost-cutting after patent losses to reduce the margin pressure from lost high-margin drug sales. Overall, Lilly’s established product line creates the enormous cash flows needed to fund the average $800 million in development costs per new drug. In addition, the company’s powerful distribution network sets up the company as a strong partner for smaller drug companies that lack Lilly’s resources. Also, Lilly’s recently launched biologic drugs create higher hurdles over traditional small molecule for biosimilars to gain market share following the eventual patent expirations.

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 1.0 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.

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.

Our rating is not materially affected by ESG risks, although we see access to basic services (tied to drug pricing) as the biggest ESG risk the firm needs to manage. Lilly generates close to 60% of total sales from US prescription drug sales (slightly higher relative to peers) so additional major pricing reforms could weigh on sales and margins. Additionally, we assume a more than 50% probability of Lilly seeing future costs related to product governance ESG risks (such as off-label marketing or litigation related to side effects), and model base case annual legal costs at 3% of non-GAAP net income (on the high end relative to peers based on Lilly’s product portfolio being more prone to possible litigation).

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 Isela Meraz.