LLY Stock Too Cheap At $750?

The article argues that Eli Lilly (LLY) is a more attractive investment than AbbVie (ABBV) despite similar valuations, citing LLY's superior growth rate (over 30% vs. ABBV's under 5%), higher profit margins (34% vs. ABBV's 26%), and a stronger balance sheet. While LLY's stock has shown resilience during market downturns, potential risks include increased competition in the obesity treatment market, which could slow its growth from 30% to around 20% in coming years; however, LLY's leadership in GLP-1 drugs and positioning across multiple treatment fronts make it an interesting long-term investment.

Analysis

Eli Lilly (LLY) presents a compelling investment case when contrasted with AbbVie (ABBV), despite both trading at high earnings multiples (LLY at 76x, ABBV at 81x). LLY's financial metrics significantly outperform ABBV's, with an accelerating growth rate exceeding 30% compared to AbbVie's sub-5% growth. Over the past three years, LLY has demonstrated an average growth rate of 17%, starkly contrasting with AbbVie's less than 1%. Furthermore, LLY exhibits superior profitability, with three-year average margins of 34% versus AbbVie's 26%, and maintains a more robust balance sheet, evidenced by a debt-to-equity ratio of 4% against AbbVie's 20%, even though both companies hold similar cash positions at 4% of total assets. While LLY has experienced volatility, declining 19% during the 2022 inflation shock and 23% during the 2020 COVID-19 pandemic, its performance was relatively resilient compared to the S&P 500's declines of 25% and 34% respectively during the same periods. The stock has recently corrected over 20% from its 52-week high, potentially offering an attractive entry point. LLY's strong positioning in the burgeoning GLP-1 drug market, projected to reach $150 billion by 2030, is a key driver, with its products like Zepbound and promising oral formulations leading the race. However, potential risks include a slowdown in growth from 30% to approximately 20% due to increasing competition from firms such as Boehringer Ingelheim, Amgen, Viking Therapeutics, and Roche, which could impact future earnings.

Key Decisions for Investors

• Investors may find Eli Lilly an interesting long-term investment, particularly given its superior growth, higher margins, stronger balance sheet compared to peers like AbbVie, and its leadership in the rapidly expanding GLP-1 market, especially after its recent stock price correction.
• Monitor competitive developments in the obesity treatment sector closely, as successful clinical trials from Boehringer Ingelheim, Amgen, Viking Therapeutics, and Roche could intensify market competition and potentially moderate Eli Lilly's future growth trajectory from its current high rates.