Eli Lilly Stock Could Soar to $1,150, According to a Wall Street Analyst. Is It a Buy at Around $945?

Shares of Eli Lilly (LLY -2.40%) have already soared by about 58% in 2024. Despite the run-up, many analysts on Wall Street think the pharmaceutical stock can climb a lot higher. Bank of America analyst Geoff Meacham is so encouraged by the company's recent progress with obesity, diabetes, and Alzheimer's disease that he thinks the stock can climb to $1,150 per share.

Meacham's recently updated price target implies a gain of 25% from the stock's closing price on Aug. 19, but that gain is a long way from guaranteed. Let's weigh the risks this stock presents against the opportunities in front of its pharmaceutical business to see if it presents an acceptable risk-to-reward ratio for everyday investors.

Why Wall Street's bullish

Eli Lilly sells a handful of different blockbuster drugs, but all attention right now is on its new best-seller tirzepatide. This is the generic name of the treatment it markets as Mounjaro for diabetes and Zepbound for weight management. Mounjaro earned approval from the U.S. Food and Drug Administration (FDA) in 2022, and Zepbound followed in November 2023.

Tirzepatide acts on two receptors in the pancreas that regulate how hungry we feel, GLP-1 and GIP. Its biggest competitor is semaglutide, a drug Novo Nordisk (NVO 1.18%) markets as Ozempic and Rybelsus for diabetes and Wegovy for weight management.

Novo Nordisk's diabetes and weight management drug has a long lead on Eli Lilly's, but semaglutide only acts on GLP-1 receptors. Tirzepatide's unique mode of action appears to make it more effective, and this difference is helping it gain market share at a blazing pace.

Data source: Eli Lilly and Novo Nordisk. Table by author. Q1 = First quarter. YOY = Year over year.

Semaglutide sales are rising rapidly for Novo Nordisk, but not nearly as quickly as Eli Lilly's drug. Tirzepatide sales in the second quarter this year were 86% higher than during the first quarter.

Investors can reasonably look forward to continued sales growth from tirzepatide. Clinical trial evidence keeps giving physicians more reasons to prescribe the treatment than just weight management. In the 176-week Surmount-1 study, adults with pre-diabetes who were randomized to receive tirzepatide were 94% less likely to progress to type 2 diabetes than the placebo group.

In June, Eli Lilly showed that tirzepatide can make a big difference for patients with obstructive sleep apnea. During the Surmount-OSA trial, patients treated with tirzepatide experienced about 30 fewer events restricting airflow per hour of sleep than patients given a placebo.

Earlier this month, Lilly showed us that tirzepatide significantly improved symptoms for patients with heart failure with preserved ejection fraction and obesity. It also reduced their risk of dangerous heart failure outcomes by 38%, compared to a placebo.

Tirzepatide is already responsible for 38% of Eli Lilly's total sales but isn't the company's only growth driver. During the second quarter, the FDA approved Kisunla to slow the progression of Alzheimer's disease dementia.

Is Eli Lilly stock a good investment now?

Physicians combatting sleep apnea, heart failure, and diabetes could prescribe enough tirzepatide to boost sales from an annualized $17.2 billion at the moment to more than $50 billion at its peak. Unfortunately, the market already expects a lot of growth. Eli Lilly stock has been trading for the nosebleed-inducing price of about 60 times forward-looking earnings expectations.

If tirzepatide and Kisunla achieve expectations, investors who buy Eli Lilly at recent prices will come out miles ahead. If an unforeseen complication hampers their progress over the next couple of years, though, the stock could fall a long way from its lofty valuation.

Risk-averse investors should wait on the sidelines for a more attractive entry point. For those of you with a high tolerance for risk, buying Eli Lilly stock right now could be a smart move.