Eli Lilly (NYSE:LLY) may not have been the top-performing large-cap pharmaceutical stock, but its performance this year is nothing to sneeze at. As of this writing, LLY stock has soared nearly 35.5% since the start of 2022.
After delivering such outsized gains during a bear market, some may be concerned that LLY will deliver middling returns from here. Worse yet, some may believe that, after this incredible run, shares are due for a correction or pullback, in light of certain factors.
So, before this stock starts reversing course, is it high time to take profit with this pharma stock winner? Not so fast.
Progress with the company’s key drug candidate, along with other promising candidates, may be enough to outweigh potential negatives. Far from running out of runway, there’s more than enough in play to keep this stock a winner over the next twelve months.
| LLY | Eli Lilly | $367.90 |
Underwhelming Guidance Won’t Sink LLY Stock
This month, Eli Lilly shares have continued to inch higher. This comes even after the release of 2023 earnings guidance that fell short of expectations. As Barron’s reported on Dec. 13, the company expects to report adjusted earnings per share (or EPS) of between $8.10 and $8.30.
Before this guidance release, sell-side forecasts were calling for an adjusted EPS of $9.16 in 2023. Admittedly, I can see why this may seem like a red flag for investors hesitant to buy LLY stock due to its rich valuation. Currently, shares sell for 56 times trailing twelve-month earnings.
This outlook suggests that the pharma giant’s main catalysts will take longer than previously-expected to play out. With this, it will be difficult for LLY to maintain its current multiple, and the market will push shares back down to a lower valuation.
While this argument makes some sense, the fact that shares didn’t plunge right after the release of this underwhelming outlook suggests the market is willing to wait for Eli Lilly’s growth to potentially accelerate in a big way. As this potential growth acceleration goes from likely to near-certainty, this stock could keep rising.
Further Gains Ahead, Thanks to Pipeline
The main factor behind the big jump in LLY stock this year has been the progress with Mounjaro, the company’s main drug candidate. While initially developed as a Type 2 Diabetes treatment, investors have become excited about the prospect of Mounjaro also obtaining approval for use as an obesity drug.
It’s not far-fetched to say that Mounjaro drug stands to become a “mega-blockbuster,” as I called it in my last article on LLY. If Eli Lilly gets regulatory approval to market Mounjaro as an obesity treatment, peak annual sales for this drug could top $25 billion. At least, that’s what one sell-side firm has argued.
Mounjaro has already received Fast Track Designation from the Food and Drug Administration, for this expanded use. Further progress in 2023, including full approval, could drive the next move higher for shares.
That’s not all. Eli Lilly has other big regulatory submission plans. Progress with the other regulatory submissions, in particular with the company’s Alzheimer’s treatment candidate, donanemab, may also help keep shares on an upward trajectory.
The new year could be a banner one when it comes to new product approval. In turn, setting the stage for growth in the years ahead.
The Bottom Line
It may take some time for LLY to make another massive move, yet that doesn’t mean this stock is at risk of giving back this year’s strong gains.
Instead, knowing full well that good things sometimes do take time, the market is willing to wait for the next round of developments with the company’s other high-potential drug candidates.
Even though Eli Lilly has dialed back expectations for 2023 earnings, additional progress in bringing Mounjaro, donanemab, and other treatments to market is likely to be more than enough to counter this factor. Assuming that regulatory progress turns into an acceleration of earnings growth, shares could once again really take off.
LLY stock is poised to stay in the green over the next year, and beyond. Consider it a solid buy at today’s prices.
LLY stock earns an A rating in Portfolio Grader.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.