Opinions
Paul MacDonald
Eli Lilly & Co.
LLY-N
COMMENT
Jan 27, 2025
Stock price when the opinion was issued
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The more successful of the GLP-1 stocks compared to NVO. Decent entry point. Trades in the 30s on forward PE, so there's a strong expectation of prescription growth; every reason to believe that's going to happen.
Be cautious on position size; don't be aggressive. Stock was down 10% yesterday because NVO made a deal with CVS to become its prime recommended product for obesity. So NVO is starting to compete more on price.
Premium contentThis big pharma company has a host of weight loss GLP-1 medications that it will soon release progress reports on later this month, some of which have already received approvals to develop. It trades at 27x forward earnings and supports a 77% ROE. We recommend setting a stop-loss at $703, looking to achieve $987 -- upside potential over 20%. Yield 0.7%
(Analysts’ price target is $987.22)Best among the weight-loss drugs, more effective than its peers. Also, the oral version will be a game-changer. LLY is gaining market share as its manufacturing ramps up. Shares are flat and need a catalyst, possibly on Aug. 7 with earnings. Their oncology platform is also doing well. He expects their revenues to double by 2030, based on 25-30% compounded growth.
A lot of the move down happened this week. Numbers were good -- earnings and revenue beat, guidance was good. Market really homed in on obesity pill disappointment (slightly less efficacy than a competitor's, 10% dropped out due to side effects). Now trades at 24x PE, with 19% growth.
Very cheap, but sentiment has become difficult and challenging. Long term, the demand for diabetes and obesity drugs is still there and will continue to grow. Industry-leading Alzheimer's drug in pipeline as well. Fortress-like balance sheet, really great cashflow.
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The question was on buying the stock, LLY, or buying the single stock ETF for Eli Lilly which is LLYH. High income and single stock ETF's are somewhat new to the Canadian marketplace. This type of ETF is a way for Canadians to own a U.S. stock listed on the TSX. With LLYH you get exposure to LLY on a Canadian exchange as well as monthly cash flow from options they write on it. So basically it is an individual stock with an option strategy. Also the ETF is a lower priced Canadian product with tax implications. LLAT is the same thing but with more leverage. You give up some upside on the stock but get a big cash flow.