With the pharmaceutical market expected to grow significantly in the coming years, Eli Lilly and Company (LLY) and its pursuit of strategic acquisitions in this large and growing market could be a boon for shareholders.

LLY’s chair and CEO, David A. Ricks, stated, “Core business growth drove solid first-quarter financial results and a strong start for Lilly in 2023, which includes pipeline progress led by positive SURMOUNT-2 data for tirzepatide in obesity.”

He further said, “We also announced important price reductions to make insulin more affordable and accessible for people with diabetes, as well as a significant investment in manufacturing facilities. It is an exciting year for Lilly, and we look forward to delivering more medicines for unmet health needs to more people around the world.”

On July 14, 2023, LLY and Versanis Bio announced a definitive agreement for LLY to acquire Versanis, a private clinical-stage biopharmaceutical company focused on the development of new medicines for the treatment of cardiometabolic diseases.

Moreover, LLY and Sigilon Therapeutics, Inc. (SGTX) announced a definitive agreement for LLY to acquire SGTX, a biopharmaceutical company that seeks to develop functional cures for patients with a broad range of acute and chronic diseases.

This acquisition is expected to enhance opportunities to create innovative islet cell therapy solutions to improve the care of people living with diabetes.

In addition, LLY and DICE Therapeutics, Inc. (DICE) announced a definitive agreement last month for Lilly to acquire DICE. Executive VP, President of Lilly Immunology and Lilly USA, chief customer officer, Patrik Jonsson, commented, “In combination with its novel technology and expertise in drug discovery, DICE’s talented workforce and passion for innovation will enhance our efforts to make life better for people living with devastating autoimmune diseases.”

LLY’s stock has gained 34.4% over the past nine months to close its last trading session at $447.14. Wall Street analysts expect the stock to hit $483.34 in the near term, indicating a potential upside of 8.1%.

Here are some factors that could influence LLY’s performance in the upcoming month:

Robust Financials 

LLY’s revenue came in at $6.96 billion for the first quarter ended March 31, 2023. The company’s non-GAAP gross margin as a percent of revenue came in at 78.4%, compared to 76.1% in the prior-year quarter. Moreover, its non-GAAP EPS came in at $1.62.

Solid Historical Growth

LLY’s levered FCF grew at a CAGR of 22.6% over the past three years. Its EBITDA grew at a CAGR of 6.2% over the past three years. Moreover, its revenue grew at a CAGR of 6.3% over the same time period.

High Profitability

In terms of the trailing-12-month EBITDA margin, LLY’s 33.06% is 818.4% higher than the 3.60% industry average. Its 7.79% trailing-12-month CAPEX/Sales is 67.7% higher than the 4.64% industry average. Likewise, its 77.67% trailing-12-month gross profit margin is 39.6% higher than the industry average of 55.64%.

Favorable Analyst Estimates

The consensus EPS estimate of $8.68 for the fiscal year 2023 represents a 9.38% improvement year-over-year. The consensus revenue estimate of $31.40 billion for the same year indicates a 10% increase from the prior year.

Its EPS for fiscal 2024 is expected to increase 39.2% year-over-year to $12.09, while its revenue is expected to increase 20.2% year-over-year to $37.74 billion.

Additionally, LLY’s EPS for the quarter ended June 30, 2023, is expected to increase 60.4% year-over-year to $2.00, while its revenue is expected to increase 16.4% year-over-year to $7.55 billion. It has surpassed the consensus EPS estimates and revenue estimates in three of the trailing four quarters.

POWR Ratings Show Promise

LLY has an overall B rating, equating to a Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories.

The stock has a B grade for Stability, in sync with its beta of 0.36. It also has a B for Quality, consistent with its high profitability.

Within the Medical – Pharmaceuticals industry, LLY is ranked #29 of 169 stocks.

Click here to access the additional ratings of LLY for Growth, Value, Momentum, and Sentiment.

Bottom Line 

Despite the turbulent macroeconomic conditions, LLY’s strategic acquisitions and investments could give it a competitive edge over other players in the pharmaceutical market. Given the company’s solid financial growth, high profitability, and favorable analyst estimates, the stock could be worth buying this week.

How Does Eli Lilly and Company (LLY) Stack Up Against Its Peers?  

While LLY has an overall POWR Ratings grade of B, equating to a Buy rating, one may also want to consider these other stocks within the Medical – Pharmaceuticals industry with an A (Strong Buy) or B (Buy) rating: Novartis AG (NVS), Novo Nordisk A/S (NVO), and Neurocrine Biosciences, Inc. (NBIX).

What To Do Next?

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LLY shares were trading at $451.00 per share on Tuesday afternoon, up $3.86 (+0.86%). Year-to-date, LLY has gained 24.00%, versus a 19.34% rise in the benchmark S&P 500 index during the same period.

About the Author: Malaika Alphonsus

Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions. More...

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