2023 has undoubtedly been about tech, with the market giants – or as they have been dubbed, the Magnificent Seven stocks – driving the gains. But tech has not been the only game in town; a totally different kind of giant has also significantly outperformed. Shares of pharma colossus Eli Lilly & Co (NYSE:LLY), for instance, have generated returns of 61%, far outpacing the S&P 500’s strong 20% return.
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The extent of the gains has taken Goldman Sachs analyst Chris Shibutani by surprise.
“We acknowledge that we had underestimated the magnitude of value that investors would ascribe to the company’s achievement of milestones (clinical data for obesity agent and Alzheimer’s disease pipeline assets) and positioning (read-across gains from Novo Nordisk’s more positive than expected SELECT trial results [in which Wegovy reduced the danger of serious cardiovascular complications in people with obesity and heart disease]),” said the 5-star analyst.
In early November, the FDA approved the company’s Zepbound (tirzepatide) injection, the first and sole obesity therapy of its type that activates both GIP (glucose-dependent insulinotropic polypeptide) and GLP-1 (glucagon-like peptide-1) hormone receptors.
Projecting a ~$100 billion global market for anti-obesity medications in 2030, Shibutani believes LLY is “strongly positioned to capture leading share,” reckoning a peak potential 50% share of the market.
With 2024 at the gate, the obesity theme is set to take center stage again with Shibutani expecting it to remain the “predominant driver of share performance.”
Given the notably higher projected growth compared to competitors and the distinct lack of end-of-decade loss of exclusivity (LOE) worries, the shares are deserving of a “meaningful premium valuation.” As such, Shibutani has updated his valuation, which now more accurately reflects these aspects compared to previous analyses.
However, Shibutani refrains from turning into a fully-fledged LLY bull just yet. “Given our view on the set up (high expectations), including (based on our investor conversations) broadly held, bullish views on the potential for clinically meaningful and commercially impactful results from the raft of outcomes studies that are expected to read-out starting in 2024, we see the performance prospects for LLY shares as more balanced, and remain Neutral rated,” the analyst explained.
Indeed, that Neutral rating comes with a $600 price target, suggesting LLY shares have a modest 3% upside from current levels. (To watch Shibutani’s track record, click here)
We’ll have to agree to disagree, appears to be the sentiment amongst Shibutani’s colleagues; all 19 other recent analyst reviews say Buy, naturally culminating in a Strong Buy consensus rating. The average price target stands at $650.17, suggesting upside potential of 12% in the year ahead. (See LLY stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
