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This Stalwart's Growth Story Isn't Over Yet

By Anirudh Shankar - Updated Mar 31, 2021 at 9:08PM

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It's a big-name pharma with a storied history, but Eli Lilly still has plenty of room left to run.

Pharmaceutical stocks have lagged the broader market recently, with the Vanguard Health Care Fund ETF (VHT 1.09%) trailing the S&P 500 by about 15% in the past year and 10% in the past five.  And while a majority of big-pharma names (like Pfizer, Bristol Myers Squibb, and AbbVie) continue to underperform, Eli Lilly (LLY 1.84%) is an exception. One of the world's largest pharmaceutical companies, Eli Lilly is poised to keep going higher, deploying its resources to tackle some of the biggest health challenges facing humanity today.

The company's wide range of products treats conditions including cancer, diabetes, immune disorders, and more. As current blockbusters continue to set records and new treatments (including for Alzheimer's disease) proceed in development, Eli Lilly is not a company healthcare investors will want to miss.

A scientist works with beakers in a lab.

Image source: Getty Images.

A high-performing portfolio of products

Eli Lilly's easy-to-understand products are the engine driving this company to outperform its peers. Lilly is a big player in the insulin space through a variety of products like Humalog, Humulin, and Basaglar, which combined added $5.22 billion in revenue in 2019.

But the biggest current driver of the business is Lilly's diabetes drug, Trulicity. Coming onto the market in 2014, it quickly grew to be the company's best-selling drug. In 2019 alone, Trulicity did $4.1 billion in sales, and that number increased by almost 20% in fiscal 2020, to $5.06 billion.

Beyond diabetes-related medications, the company boasts Verzenio, which treats breast cancer, and Jardiance, which treats type 2 diabetes. These drugs showed impressive growth of 22% and 54%, respectively, from 2019 to 2020.

Ongoing business expansion

Founded in 1903, Lilly has set its sights on a number of conditions over the years. One current area of focus, mental illnesses and neurological diseases, came to the forefront in 1988 with the launch of Prozac. It's currently evident in Lilly's recent acquisition of Disarm Therapeutics, a biotechnology company that is creating breakthrough disease-modifying therapeutics to treat patients with neurological diseases by preventing axonal degeneration. This acquisition will strengthen Eli Lilly's position on the neurological diseases front and allow for further expansion.

Management has also been attentive to the coronavirus pandemic, diverting resources toward developing a monoclonal antibody therapy named bamlanivimab, which acts as a substitute antibody that can restore, enhance, or mimic the immune system's attack on cells.

The company has received emergency use authorization from the U.S. Food and Drug Administration for the drug, as well as an $812 million purchase agreement from the Trump administration. The company's revenue in 2020 was $24.5 billion, so at about 3.3% of that total, this marks another source of income for Eli Lilly in an already diverse portfolio of products. 

It's beaten the market for years, and it's not stopping now

Eli Lilly is one of the few pharmaceutical companies that has managed to outperform the S&P 500 over the past few years. Premier blue chip Johnson & Johnson has only managed to return 51% to shareholders over the past five years, while Eli Lilly notched 160% in share-price appreciation during the same time period. Bristol Myers Squibb ended up losing 1.5% and Pfizer returned only 27%. Lilly has truly been a standout.

^SPX Chart

JNJ data by YCharts

The company is currently valued at a price-to-earnings ratio of about 22, which is in line with its historical average since 2014. Over time, stock prices tend to track earnings, and the handsome growth in Lilly's earnings over the past few years is what I believe has led to such tremendous share-price appreciation -- and I see no reason that should stop.

The company also offers a 1.89% dividend yield, which was actually increased by 14.7% in both 2019 and 2020. The bottom line is that the growth is not over for Eli Lilly, and there may be no better time for healthcare investors to buy than now.

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Stocks Mentioned

Eli Lilly and Company Stock Quote
Eli Lilly and Company
$319.23 (1.84%) $5.77
SPDR S&P 500 ETF Trust Stock Quote
SPDR S&P 500 ETF Trust
$412.57 (1.79%) $7.26
Pfizer Inc. Stock Quote
Pfizer Inc.
$53.58 (-0.77%) $0.41
Johnson & Johnson Stock Quote
Johnson & Johnson
$179.31 (-0.08%) $0.15
Bristol Myers Squibb Company Stock Quote
Bristol Myers Squibb Company
$75.53 (-2.65%) $-2.06
AbbVie Inc. Stock Quote
AbbVie Inc.
$148.39 (-1.45%) $-2.18
Vanguard World Fund - Vanguard Health Care ETF Stock Quote
Vanguard World Fund - Vanguard Health Care ETF
$243.51 (1.09%) $2.63

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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