Entry Price: $234
Target Price: $280
Projected Yield: 19.10%
Time Line: 3 to 6 months
Position Size: 2%
Expected Dividend Yield: 1.47%
Eli Lilly (LLY.US) is a leading innovative pharmaceutical corporation founded in back in 1876. The company develops and implements medical drugs aimed at treating of a number of diseases related to endocrinology, oncology, psychiatry, neurology, cardiology, urology, and infections. The company's portfolio includes a wide range of promising drugs that are distributed in 125 countries.
What's the Idea?
The idea lies in capitalizing on a stock that could rally with the success of the drug against Alzheimer disease, as well as with the successful Prevail Therapeutics M&A, which provides Eli Lilly with access to gene therapy.
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Why Trade Eli Lilly?
Reason 1: FDA-Approved
In late June, the US Food and Drug Administration (the FDA) awarded a breakthrough therapy status to Eli Lilly's Donanemab, a drug for Alzheimer disease treatment. The company announced that it intended to apply for a Biological License (BLA) for the drug later this year. The application will be based on data achieved through the TRAILBLAZER-ALZ study, in which the drug showed an ability to significantly delay cognitive decline in patients, while also being safe. The company is currently conducting stage 3 clinical trials for TRAILBLAZER-ALZ 2, which investigates the safety and efficiency of the drug against a larger number of patients.
Previously, the FDA approved Biogen's Aducanumab, which also targets Alzheimer's disease treatment, which was positively received in the market for both Biogen and Eli Lilly. Eli Lilly's Donanemab has better performance indicators and has not yet shown any inconsistent or insignificant results, compared to Aducanumab.
Alzheimer's disease therapy is a promising area due to the widespread prevalence of the disease among the seniors in developed countries. This is also the main cause of age-related cognitive decline. This puts the potential market for Eli Lilly drugs to around $10B, per year. Currently, there is no efficient drug in the market that could treat mental and memory disorders caused by the disease.
Reason 2: Competitive Edge
An important feature of Eli Lilly is the wide range of the in-demand products it offers. Currently, the company provides drugs aimed at treating diabetes, various types of cancer, arthritis, psoriasis, and migraines. The portfolio includes 14 drugs, including those developed on the basis of antibodies to COVID-19.
Last year, each of Eli Lilly's 9 top products earned over $1B for the company.
The leaders in terms of earnings include:
- Trulicity, type II diabetes drug: $5.06B earnings, 23% annual growth
- Taltz, plaque psoriasis drug: $1.79B earnings, 31% annual growth
- Jardiance, type II diabetes drug: $1.15B earnings, 22% annual growth
In addition, Eli Lilly is heavily working in the insulin market, offering multiple products in this area and continuing to develop new drugs. The company is currently creating a new type of insulin, Basal Insulin Fc (BIF), with which weekly injections will be enough. It is estimated that the US insulin market could rise by more than 30% to reach $36B by 2027, with the average annual growth of 4.20%. Globally, the number of adults (aged 20 to 79) living with diabetes is expected to rise by 50% by 2045 to 700M people, leading to a significant increase in insulin demand, which is an additional growth factor for Eli Lilly.
Meanwhile, Eli Lilly is still acquiring new assets for further portfolio expansion. In January 2021, it acquired Prevail Therapeutics to gain access to gene therapy that will expand its portfolio of drugs against neurodegenerative diseases.
Thus, there is a solid foundation for further development and expansion.
Reason 3: Financial Performance
Eli Lilly can boast of a stable financial position: last year, the company's earnings increased by 9.90%, while in Q1 2021, they rose by 16% compared to the same period last year. Meanwhile, the operating margin in Q1 2021 amounted to 17%, while the net profit margin reached 19.90%, and the diluted EPS came at $1.49.
The company has a moderate debt burden, with the debt amounting to $16.20B. The amount of liquid funds is at $3.05B, while the Net Debt / EBITDA ratio is at 1.60x. Eli Lilly has no liquidity issues, as the free cash flow (FCF) was at $5.10B in 2020, while it came at $1.40B in Q1 2021 alone.
The management expects the 2021 earnings at $27.60B, the operating profit margin, at 31%, and EPS, around $7.80 to $8.00.
Currently, the ratios for Eli Lilly are as follows: EV/S: 6.80x, EV/EBITDA: 20.50x, P/E: 35x, which is below the industry average.
In May 2021, Eli Lilly announced a new $ 5 billion asset buyback program, which could also be an additional stimulus for the stock price.
In June, multiple investment companies and banks set the following target prices for the stock:
- The Goldman Sachs Group: $270
- JPMorgan Chase & Co: $260
- Cowen: $250
- Cantor Fitzgerald: $300
- Truist Securities: $262
- Barclays: $250
How to Use the Idea
- Buy the stock at $234.
- Allocate no more than 2% of your portfolio for the transaction. To build a balanced portfolio, you can use the recommendations by our analysts.
- Sell the stock when the price reaches $280.
How to Buy Eli Lilly?
If you don't have an investment account yet, open it now: this can be done online, in just 10 minutes. All you need to do is fill out a short form and verify your account.
After opening an account, you can buy shares in either of the following ways:
Freedom24 Web Platform: In the Web Terminal section, type LLY.US (Eli Lilly ticker in the NASDAQ) in the search box, and select Eli Lilly in the results. Open a secure session in the trading window on the right, select the number of shares you want to buy, and click Buy.
Freedom24 iPhone or Android App: Go to the Price screen and tab the search icon in the top right corner. In the search dialog that will show up, type LLY.US (Eli Lilly ticker in the NASDAQ) and select Eli Lilly in the search results. You will then see the stock in the market watch; tap it and go to the Order tab in the dialog that shows up. Specify the number of shares you want to buy and click Buy.
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*Additional information is available upon request. Investment in securities and other financial instruments always involves risks of capital loss. The Client should make himself aware at his own accord, including to familiarize himself with Risk Disclosure Notice. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Commissions, fees or other charges can diminish financial returns. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and do not constitute an investment advice service. The recipient of this report must make their own independent decisions regarding any securities or financial instruments mentioned herein. Information has been obtained from sources believed to be reliable by Freedom Finance Cyprus Ltd or its affiliates and/or subsidiaries (collectively Freedom Finance). Freedom Finance do not warrant its completeness or accuracy except with respect to any disclosures relative to the Freedom Finance and/or its affiliates and the analyst’s involvement with the issuer that is the subject of the research. All pricing is indicative as of the close of market for the securities discussed, unless otherwise stated.