We're raising our price target on Eli Lilly as the GLP-1 leader delivers a huge beat
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CNBC Finance
5 min read
Eli Lilly 's fourth-quarter results blew past Wall Street estimates on Wednesday, as key GLP-1 drugs, Mounjaro for diabetes and Zepbound to treat obesity, grew triple-digits â and there's still plenty of growth ahead. Revenue in the fourth quarter ended Dec. 31 advanced 43% year over year to $19.3 billion, crushing expectations of $17.96 billion according to estimates compiled by data provider LSEG. Earnings per share (EPS) increased 42% year over year to $7.54, also blowing past estimates of $6.67, according to LSEG. LLY 1Y mountain Eli Lilly 1-year return Bottom line Talk about a monster quarter. Combined sales for the company's blockbuster GLP-1 drugs Zepbound and Mounjaro exceeded $1 billion, with each showing triple-digit growth. Despite higher costs, management improved profitability, with adjusted operating margins expanding by nearly 300 basis points. Speaking with CNBC, CEO David Ricks said patients are requesting Eli Lilly's weight-loss and diabetes drugs because they lead to significant weight loss and have fewer side effects than competitors' drugs. That has led to further market-share gains. On the post-earnings call with investors, CFO Lucas Montarce said Zepbound nabbed nearly 70% share of new GLP-1 prescriptions in the U.S., while Mounjaro won 55% of new prescriptions. Eli is now the leader in the GLP-1 market both domestically and internationally, Montarce said. Why we own it Eli Lilly's best-in-class drugs should enable growth above the industry average for many years to come. The portfolio is anchored by its GLP-1 franchise, which currently includes Mounjaro for type 2 diabetes and Zepbound for obesity. The fast-growing class of drugs has the potential to treat other conditions, such as sleep apnea, and reduce the risk of stroke. Lilly's pipeline of Alzheimer's treatments, including the recently approved Kisunla, adds to the stock's long-term appeal. Competitors: Novo Nordisk , Biogen , Eisai, Merck and Pfizer Weight in portfolio: 2.72% Most recent buy: Nov. 25, 2024 Initiated: Oct. 8, 2021 There is still an enormous opportunity. Ricks said just 20 to 50 million people currently use GLP-1s, but the addressable market is 1 billion and growing, as doctors discover new use cases (plus weight loss can address other health issues). Despite the tremendous growth, we're still in the early innings. Of course, how large a market a company can capture depends heavily on patent expirations. These GLP-1 drugs are unique in that the growth is coming so early in their patent lifecycles. The patent on tirzepatide âthe active ingredient in Mounjaro and Zepbound â extends into the back half of the 2030s. A major catalyst for accelerating growth is Eli Lilly's oral GLP-1, called orforglipron, which the company expects to launch in the second quarter in the U.S. and internationally in 2027. Ricks shot down concerns that the pill would cannibalize sales of its injectable medicines, stating it would instead just expand the market to needle-shy consumers. Another big growth driver is price. Ricks said GLP-1 demand is elastic, meaning that it is sensitive to price adjustments. As a result, Ricks said, as prices come down, adoption will increase, and of course, once you get on these drugs, you tend to stay on them. Finally, all the demand in the world doesn't matter if a company is unable to meet it with supply. Fortunately, Eli Lilly really shines in manufacturing capacity. The company exceeded its goal of producing 1.8 times as many GLP-1 doses in the back half of 2025 as in the prior-year period. Recall, last week, we highlighted that Eli Lilly had annoucned plans to invest more than $3.5 billion in a new facility in the Lehigh Valley of Pennsylvania to help further increase manufacturing capacity for its injectable medicines. And the company expects demand to keep growing, with management's updated guidance for the year significantly exceeding Street estimates. As a result, we are increasing our price target to $1,250 from $1,100, but are maintaining our 2 rating, which means we'll wait for a pullback to buy more shares. Guidance Management estimates for the full year: Revenue of $80 to $83 billion, above the Street's consensus estimate of $77.62 billion, according to LSEG. "Performance margin" (management's term for adjusted operating margin) of 46% to 47.5%, compared to a 46.6% estimate, according to FactSet. Earnings of $33.50 to $35 per share, ahead of the $33.23 expected, according to LSEG. (Jim Cramer's Charitable Trust is long LLY. 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