No healthcare company has ever achieved the remarkable feat of a $1 trillion market capitalization. At least that was true until Nov. 21, when Eli Lilly (LLY 0.51%), a pharmaceutical giant, became the first in the industry to get there.
And the best news is that it likely still has plenty of upside potential. Given its current momentum, Eli Lilly could even hit $2 trillion by 2031. The company needs a compound annual growth rate of 12.3% to achieve this goal.
One argument against: valuation
Some will point out that although the company is performing well, its success may already be baked into its share price. The drugmaker is trading at 33.3 times forward earnings, compared to the healthcare industry's average of 18.1. Even with strong business results over the next half-decade or so, the stock price could decline during this period as investors cash in some of their profits. So the company could underperform the market even if its revenue and earnings expand at a relatively strong clip.
Lilly will need to perform in line with or ahead of market expectations if it hopes to achieve the kind of returns that will make it a $2 trillion company by the end of 2031. Here's why the drugmaker could pull it off.
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Growth catalysts in the core market
When people think of Eli Lilly these days, they think of the company leading the weight loss market. The pharma's tirzepatide, sold under the brand names Zepbound to treat obesity and Mounjaro for diabetes, is experiencing substantial sales growth.
The company also has several other pipeline candidates that are expected to significantly boost revenue in its core therapeutic area. These include orforglipron, an oral GLP-1 medicine that should earn regulatory approval soon for weight loss and diabetes.
Shares could also jump due to substantial clinical progress in this field. One promising medicine it is working on is called retatrutide, which mimics the action of three gut hormones (versus two for tirzepatide). The triple-pathway approach could confer even greater efficacy.
This isn't just about launching a medicine that is more effective than tirzepatide. It's about targeting corners of the weight loss market that the existing options aren't tailored to address. In a phase 2 study, retatrutide's efficacy was compared to what is typically seen in bariatric surgeries.
NYSE: LLY
Key Data Points
Many patients with very high body mass indexes (BMIs) and related complications either aren't eligible for a surgical procedure or simply don't want to undergo one. But for some, medicines like tirzepatide hit a plateau that leaves them with plenty more work to be done.
Enter retatrutide. Daniel Skovronsky, Lilly's chief scientific and medical officer, said, "We believe retatrutide will likely be best suited for patients with a very high BMI or with obesity related complications that require a high degree of weight loss."
Clinical and regulatory progress in weight loss, coupled with the company's outstanding financial results -- third-quarter revenue grew 54% year over year to $17.6 billion -- should help maintain a strong stock market performance for the drugmaker.
More to look forward to
One of Eli Lilly's key strengths is that it is leveraging its current success to diversify its pipeline and plan for the future. Over the next few years, we can expect to see significant progress in areas beyond weight management. The company has strengthened its pipeline through acquisitions and now features promising candidates in oncology, pain management, rare diseases, and other areas.
We can also point to the other medicines quietly making progress in the company's portfolio. Verzenio, a cancer treatment, has become somewhat of an afterthought, but it continues to generate meaningful revenue. Its third-quarter sales came in at $1.5 billion, 7% higher than the same period last year. Kisunla, a medicine for Alzheimer's disease, was another breakthrough and should see decent growth over the next few years.
These medicines and candidates won't be the major drivers of the company's performance. But they will help highlight an important point: Eli Lilly is innovative beyond its main area of expertise. As the company diversifies its lineup, that is another factor that can boost its share price.
A terrific stock regardless
Eli Lilly could hit $2 trillion by 2031, or it might not. Either way, the pharmaceutical leader possesses the qualities of a stock worth holding for a long time, and it offers a strong dividend program that will appeal to income-seeking investors. So it's best not to focus too much on whether it can more than double in six years. The stock is a buy regardless.
