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4 Reasons Eli Lilly Stock Can Keep on Climbing

By Cory Renauer – Apr 25, 2020 at 8:37AM

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It's going to take more than the COVID-19 pandemic to stop this big pharma freight train.

Eli Lilly (LLY -1.89%) reported first-quarter earnings, and instead of slashing forward estimates provided earlier this year, it actually raised expectations for the rest of 2020.

It's hard to know how COVID-19 and efforts to slow its spread will affect Eli Lilly in the long run, but right now, it looks like the company has little to worry about. Here are four bright spots from Lilly's latest earnings call that suggest its stock could keep climbing through 2020 and beyond.

Prescription drugs falling out of a bottle onto cash, with other prescription bottles making a circle around the money.

Image source: Getty Images.

1. Guidance reaffirmed

Efforts to contain the easily transmitted coronavirus are decimating most corners of the economy, but Eli Lilly still expects significant growth through the foreseeable future. If Lilly's bottom line meets expectations, the company will record another year of double-digit earnings growth. 

On Jan. 30, 2020, the company told investors to expect adjusted earnings to fall in a range between $6.70 to $6.80 per share. On April 23, 2020, it reaffirmed the bottom end of its previously provided range and bumped the high end up to $6.90 per share.

2. No longer lumbering

During the decade leading up to the appointment of Eli Lilly's current CEO, the company's bottom line lumbered along without any significant gains and dipped into negative territory almost immediately following David Ricks' appointment to the lead role.

Since Ricks took the helm, though, Eli Lilly has finally started reporting significant earnings growth. In 2019, adjusted earnings rose 11% over the previous year. Lilly's recent reaffirmation means the company expects at least another 11% gain at the low end of its guided range and 14% more at the recently raised high end.

3. No major patent cliffs ahead

Drugs launched before 2014 were responsible for less than half of Eli Lilly's overall revenue during the first quarter. The company still leans on its aging Humalog franchise for around 12% of total revenue, and it's going to be a long time before this revenue stream runs completely dry.

Roughly 1 in 10 Americans have been diagnosed with diabetes, and they all need help regulating their blood sugar. That's such a large number that shifting away from high-margin branded insulin sales to low-margin generics is working for Lilly. 

The Food and Drug Administration (FDA) approved Sanofi's (SNY -0.10%) biosimilar version of Humalog, called Admelog, in 2017. Despite the outside competition from Sanofi, Lilly's own low-priced version, called Insulin Lispro, is now Humalog's main competitor. In the first quarter, sales of Humalog and Insulin Lispro fell just 5% year over year to an annualized $2.8 billion, and were easily offset by more recently launched drugs.

Cash money in a beaker

Image source: Getty Images.

4. A winning lineup

First-quarter sales of Trulicity rose 40% year over year to an annualized $4.9 billion, and this non-insulin diabetes treatment isn't the only member of Lilly's post-2014 club making big gains. Sales of Taltz, the company's monthly psoriasis injection, soared 76% to an annualized $1.7 billion.  

Lilly also reported soaring sales of several drugs younger than Taltz that could drive growth into an even higher gear. Sales of Verzenio, a tablet that earned approval in 2017 to treat HR-positive, HER2-negative breast cancer, climbed 72% to an annualized $752 million. Sales of Olumiant, an oral rheumatoid arthritis treatment launched in 2018, rose 70% to an annualized $558 million.

In 2019, Eli Lilly was one of several companies to launch new monthly injections that prevent migraine headaches. Sales of Lilly's migraine drug Emgality reached an annualized $296 million in the first quarter and could climb much further if the popularity continues to rise among the estimated 4 million Americans who regularly experience the debilitating headaches.

Something to look forward too

At recent prices, Eli Lilly shares offer a 1.8% dividend yield that investors can reasonably expect to grow in the years to come. At the end of 2019, the company raised its payout 15%, and there's room for more payout bumps ahead.

Over the past year, the company used 69.2% of free cash flow to meet its dividend obligation, which is low enough to safely raise the payout in line with earnings growth. With earnings set to grow at a double-digit percentage in 2020 and perhaps beyond, this company could deliver market-thumping gains over the long run.

Cory Renauer 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.

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Stocks Mentioned

Eli Lilly and Company Stock Quote
Eli Lilly and Company
LLY
$326.66 (-1.89%) $-6.29
Sanofi Stock Quote
Sanofi
SNY
$38.86 (-0.10%) $0.04

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