Eli Lilly (LLY +2.55%) stock has soared 90% over the past year, a huge gain for a pharmaceutical company. These stocks generally are known for steady increases over time instead of big movements over a year or two. And this follows the pace of their earnings, which also are progressive over time -- even in difficult economies -- as people always need their medicines.
So why is Eli Lilly standing out from the crowd? Over the years, this pharma giant has delivered the steady earnings growth that its industry is known for -- but it's also seen an enormous boost to revenue more recently thanks to its specialty in one particular area. I'm talking about weight loss drugs. Lilly sells Mounjaro and Zepbound, two that doctors regularly prescribe to their patients.
As a result, Lilly's earnings and stock performance have surged. But does this make Lilly the best pharma stock for you? Let's find out.
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Lilly's weight loss drugs and full portfolio
First, it's important to note that Lilly has a broad portfolio of drugs in a variety of specialty areas, from cancer to immunology and neuroscience. And many of these products beyond the weight loss drugs are driving significant growth. For example, in the most recent quarter, four products across treatment areas delivered double-digit revenue gains. And breast cancer drug Verzenio posted a 40% increase in sales to more than $1 billion.
All of this means that even though weight loss drugs have offered Lilly a big boost, Lilly doesn't depend on them alone for growth -- and this is positive. Whether you're an aggressive or cautious investor, it's always a good idea to favor pharmaceutical companies that generate growth thanks to a variety of products and treatment areas. So, if one revenue stream suffers, another can compensate -- this lowers the company's risk and your risk as an investor.
Now let's consider Lilly's position in the high-growth weight loss market. The company shares the market right now with Novo Nordisk, which sells two drugs that work in a manner similar to Lilly's drugs. These products all act on hormones that regulate blood sugar levels and appetite, and in clinical trials and in the real world they've delivered impressive results.
NYSE: LLY
Key Data Points
Demand surpassing supply
That's why demand has actually surpassed supply, offering both Lilly and Novo Nordisk plenty of room to generate billions of dollars in revenue. In fact, right now, their biggest challenge is ramping up manufacturing to meet demand. Since 2020, Lilly has invested more than $18 billion in increasing manufacturing capacity through factory upgrades and the development of new facilities.
And this great demand means that even the potential entrance of other rivals down the road isn't likely to disturb Lilly's leadership -- especially since Lilly itself is developing new weight loss candidates, and two, in phase 3 trials, are approaching the finish line.
As for the current products, they both are essentially the same drug: tirzepatide. But regulators approved the compound under the name Mounjaro in 2022 for type 2 diabetes and approved Zepbound late last year specifically for weight management. Doctors have prescribed both of these drugs to help patients lose weight.
Mounjaro already is a blockbuster, bringing in more than $5 billion in revenue last year, and Zepbound is on the way, generating more than $500 million in revenue in its first full quarter of commercialization.
These current drugs and possible new ones, along with forecasts for massive market growth (to reach $100 billion by 2030, according to Goldman Sachs Research), suggest Lilly will continue to benefit from significant revenue growth in the years to come.
On top of this, Eli Lilly has more than doubled its dividend payments over the past five years, so you may be able to count on this pharma player for dividend growth too.
LLY Dividend data by YCharts
Is Eli Lilly right for you?
Now let's get back to our question: Is Eli Lilly the best pharmaceutical stock for you? This depends on your investment strategy. If you're a cautious investor looking for a value stock, Lilly may not be the best choice. Lilly's recent earnings and stock performance successes have left it trading for 62x times forward earnings estimates. I think that's reasonable considering the company's growth prospects, but it still isn't the cheapest stock on the block. Value investors may find better opportunities elsewhere.
But if you're an aggressive investor looking for growth, Lilly is well positioned to deliver thanks to its weight loss drug program as well as its full portfolio of products -- and that makes this top pharma stock a great addition to your portfolio even at today's price.
