Key Points
Eli Lilly beat on earnings last week.
But then it missed on expectations for the performance of its new orforglipron weight loss drug.
This GLP-1 weight loss drug play has a lot more room to run.
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Shares of Eli Lilly (NYSE: LLY), the pharmaceuticals giant and maker of the Mounjaro and Zepbound weight loss drugs, saw its stock bounce back a modest 2.5% through 1:55 p.m. ET Monday on some positive news out of Wall Street.
Specifically: Bernstein says that Eli Lilly stock is a buy.
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What Bernstein says about Lilly stock
Lilly stock got pummeled last week, falling 18% after reporting 38% revenue growth in its second-quarter report. It also reported that its new oral (pill) weight-loss drug orforglipron didn’t cut patients’ weight quite as much as the company had hoped it would. But according to Bernstein analyst Courtney Breen, this steep decline in stock price has created a “clear buying opportunity” for new investors, as she writes in a note on StreetInsider.com today.
Lilly beat on both sales and earnings last week, notes Breen, and investors’ decision to sell off the stock on less-than-stellar orforglipron results “was overblown,” subtracting almost $100 billion from Lilly’s market capitalization. Tagging the new drug with an affectionate diminutive, Breen argues that “Orfo” can still play a “market expanding role” that will drive Lilly’s already strong results even higher in future years.
Is Lilly stock a buy?
I think she’s right about that. Consider:
Breen predicts that Lilly will earn $22.84 per share this year, and most analysts agree that the stock can grow earnings 32% or better over the next five years. To get a price/earnings-to-growth (PEG) ratio of 1.0, that would therefore imply a fair value of $730 for Lilly stock — and right now, Lilly stock costs only $640 and change!
At minimum, I’d therefore forecast 14% upside for Lilly stock today. Add in a modest 1% dividend yield, and that makes Lilly stock a buy in my book.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
