Eli Lilly Earnings: A Safe-Haven Biotech Stock In A Volatile Market (NYSE:LLY)

Indianapolis - April 2016: Eli Lilly and Company VII

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Eli Lilly (NYSE:LLY) recently reported their Q1 2022 earnings with a solidbeat on EPS and revenue. Lilly’s revenue growth in Q1 2022 increased 15%, with their core products leading the way, along with their COVID-19 antibodies. This performance has encouraged the company to update their 2022 guidance to be around $8.15-$8.30 and revenue coming in between $28.8B-$29.3B. What is more, the company is slated for several potential product approvals along with some key new pipeline events. I believe the company’s Q1 earnings and company updates should make LLY a safe haven during market volatility.

I intend to review the company’s Q1 earnings and company updates. Then, I will forecast what we can expect as we move deeper into 2022. Finally, I discuss why LLY is a top idea in my Seeking Alpha Marketplace Service, Compounding Healthcare.

Q1 Earnings

Lilly reported a Q1 non-GAAP EPS of $2.62, which was up 63% year-over-year. The company’s revenue came in at $7.81B, which is up around 15% year-over-year. US sales led the way climbing 31%, to $5.17B. However, the ex-US revenue decreased 8%, to $2.64B. The company’s gross margin popped up 16% year-over-year.

Eli Lilly Q1 Results

Lilly Q1 Results (Eli Lilly)

The company attributed their Q1 performance to the ~20% increase in product volume. Core products represented 61% of total revenue for Q1 including strong sales from their diabetes products. Trulicity led the way with $1.74B in sales, which is a 20% increase year-over-year. Jardiance pulled in $419.4M which is up 34% year-over-year. In oncology, Verzenio sales were $469.4M, which is up 74% year-over-year. The company also reported strong performances from Taltz, Olumiant, Emgality, Retevmo, Cyramza, and Tyvyt. The company’s COVID-19 antibodies accounted for ~$1.47B in revenue up 81% year-over-year.

Eli Lilly Key Growth Products

Lilly Key Growth Products (Eli Lilly)

In terms of expenses, the company reported $1.61B in R&D, which is a 4% decrease thanks to lower development costs. On the other side, SG&A dropped 1% to $1.56B for the quarter.

As a result, the company raised their 2022 revenue guidance to $28.8B-$29.3B, which is up from $27.8B-$28.3B. However, the company dropped their EPS guidance from $8.50-$8.65 down to $8.15-$8.30.

Eli Lilly 2022 Guidance

Lilly 2022 Guidance (Eli Lilly)

Company Updates

Lilly publicized several updates on clinical, regulatory, and business developments, such as the $700M investment to launch the Lilly Institute for Genetic Medicine in the Boston Seaport.

However, I am eyeing the company’s reported data from their once-weekly GIP/GLP-1 agonist, Tirzepatide, which revealed its ability to produce a 22.5% weight loss in adults with obesity or overweight in a Phase III study. The data suggests Lilly might have a unique asset that can combat numerous metabolic conditions/diseases.

Jardiance continues to pump out great data including their Phase III EMPA-KIDNEY trial, which will stop early due to clear positive efficacy. In addition, Jardiance showed strong results for acute heart failure patients in their Phase III EMPULSE trial. Furthermore, the company reported that the FDA approved the label expansion for Jardiance for heart failure irrespective of left ventricular ejection fraction. What is more, one of the company’s COVID-19 treatments, Bebtelovimab, received a USA from the FDA for the treatment of adults and pediatric patients with mild-to-moderate COVID-19.

Other pipeline updates included data for Lebrikizumab combined with topical corticosteroids for moderate-to-severe atopic dermatitis. The Phase III data showed that 70% of patients experienced a minimum 75% decrease in disease severity at 16 weeks. For Olumiant, the company published pivotal Phase III study data that showed approximately 40% of adults with alopecia areata had at least 80% scalp hair coverage at 52 weeks. Lilly also updated investors on mirikizumab’s Phase III LUCENT-1 study for ulcerative colitis. The data showed that nearly two-thirds of patients responded to mirikizumab at 12 weeks.

looking ahead

The company has numerous pipeline catalysts slated over the remainder of 2022, including several regulatory submissions and actions.

Eli Lilly Key Events in 2022

Key Events in 2022 (Eli Lilly)

These events should be significant fundamental catalysts that will determine the company’s future success.

For earnings, the Street is expecting Lilly to report modest growth in EPS in Q2 and Q3… but a slight decrease year-over-year in Q4.

LLY Quarterly EPS Estimates

LLY Quarterly EPS Estimates (Seeking Alpha)

Looking at the revenue estimates, we can see that the Street expects Lilly to report sequential growth and finished with ~$7.5B in Q4.

LLY Quarterly Revenue Estimates

LLY Quarterly Revenue Estimates (Seeking Alpha)

In the end, the street expectations the company to report an annual EPS of $8.50, which would be up 4.18% over 2021. For revenue, the Street anticipates the company to pull in $28.91B revenue this year, which would be a 2.08% increase over 2021.

So, it looks as if 2022 is going to be another year of significant progress and earnings growth.

A Top Idea

The company is showing their ability to drive the adoption of their lead medicines; lay the groundwork for key product launches, and finalize submissions for several assets around the globe. At the same time, they are moving the company’s pipeline forward in order to stockpile the materials needed for the next level of growth.

The company continues to offer a healthy dividend and deliver shareholder value. In fact, the company distributed nearly $900M in dividends in Q1 and completed $1.5B in share reproaches. As a result, the share price has continued its upward trajectory growing roughly 60% over the past 12 months.

Eli Lilly Capital Allocation

Lilly Capital Allocation (Eli Lilly)

Considering the current global macroeconomic environment and the drop in US GDP, I would say the company’s Q1 performance should provide some optimism to investors that the company will be able to weather inflation and market volatility.

Considering these points, LLY will continue to be a “Top Idea” in my Seeking Alpha Marketplace Service, Compounding Healthcare.

risks

Despite my bullishness on LLY, I must concede there are a couple of major risks that could turn against the ticker for the remainder of 2022. First and foremost, the stock is overvalued compared to the healthcare sector’s median.

LLY Valuation Grades

LLY Valuation Grades (Seeking Alpha)

Admittedly, the company is projected to grow into these valuations in the coming years and the DCF model has LLY’s fair price at $322.50. Still, there is the threat the market sees LLY as overvalued or has limited upside at this point in time.

Another concern is the chart’s technical and the potential loss of momentum.

LLY Stock Daily Chart

LLY Daily Chart (Trendspider)

LLY Daily Chart Enhanced View (trendspider)

Looking at the Daily Chart, we can see that the share price recently hit an all-time high, however, we can see signs of a bearish divergence in the Daily and Monthly RSIs. A bearish divergence is typically a signal of an imminent reversal in the share price, so it is possible LLY is preparing for a big move lower in the coming weeks.

My plan

My plan for LLY is comparable to my other Healthy Dividend names, which is to accumulate an outsized position over several years using a dollar-cost average “DCA” strategy. However, I will be fastidious with my purchases considering the current market environment. For that reason, I’m going to implement a buy threshold that will help avert thoughtlessly overpaying. This threshold is envisioned to be a guideline to help make periodic investments as long as the share price is trading below my Multi-stage Dividend Discount Model “DDM” target of about $280 per share. I will also use a low-sensitivity Discount Cash Flow “DCF” model to get a discount price of ~$171.50 per share, which is where I will increase my buy size.

At the moment, LLY is trading just above my buy threshold, so I will set a buy alert at $280 and will look to press the buy button as soon as I see a high conviction reversal setup.

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