Eli Lilly Raised Its Outlook. Is the Stock a Buy Now? | The Motley Fool

Eli Lilly (LLY -0.14%) stock has been a top performer thanks to runaway sales of its diabetes-turned-weight-management treatment.

Despite nearly doubling over the past 12 months, Eli Lilly stock still has heaps of upside according to investment bank analysts who follow the century-old pharmaceutical giant. Barclay's, an investment bank, recently raised its price target on the pharma giant to $913 per share.

At recent prices, a $913 per-share target suggests Lilly stock could climb about 17% over the next 12 months. Let's look at the reasons why Wall Street's still bullish for this high-flying stock to see if it's a smart buy now for everyday investors.

Eli Lilly's sales keep defying gravity

Experienced investors rarely see established pharmaceutical companies raise revenue by double-digit annual percentages. Thanks to soaring sales of multiple new treatments, big gains are the new normal for Eli Lilly.

First-quarter sales of tirzepatide, a drug marketed as Zepbound for weight management and Mounjaro for diabetes, soared to $2.3 billion from just $568 million in the previous-year period. Tirzepatide isn't the only blockbuster with rising sales either. Sales of Verzenio, a breast cancer treatment, rocketed 40% higher year over year to $1.1 billion.

Lilly raised its total-revenue outlook for 2024 by $2 billion to a range between $42.4 billion and $43.6 billion. The midpoint of management's expected-revenue range for this year is a whopping 51% above the amount of revenue Lilly reported in 2022.

What about the competition?

Tirzepatide is a dual GLP-1 and GIP agonist, which appears to give it a leg up on semaglutide, its lead competitor. Semaglutide from Novo Nordisk, which is marketed as Ozempic for diabetes patients and Wegovy for weight management, only acts on GLP-1 receptors.

Semaglutide and tirzepatide haven't been tested in head-to-head trials. Cross-trial comparisons, though, suggest tirzepatide's dual function makes it more effective as a weight-management treatment.

Semaglutide has been marketed about five years longer than tirzepatide, so Eli Lilly's sales have some catching up to do. In 2023, injected semaglutide sales reached about $18.2 billion for Novo Nordisk.

A clinical-stage company called Viking Therapeutics recently made waves with a dual GLP-1 and GIP agonist tentatively named VK2735. There's a chance that Viking's candidate can eventually compete with tirzepatide. That said, it will be a few years before this candidate, which hasn't completed a phase 3 trial, gets a chance to compete with Eli Lilly's most successful drug.

A buy now?

Without a serious competitive threat on the horizon, Tirzepatide is going to push Lilly's total sales much higher for at least a few more years and probably over a decade. Unfortunately, I'm not the first investor to notice.

Expectations for Eli Lilly are so high that the stock has been trading for around 58.2 times the midpoint of management's adjusted-earnings outlook for 2024. That's an extremely high-earnings multiple for an established pharmaceutical company.

Semaglutide's sales performance has been amazing, and it's likely to be overtaken by tirzepatide. Before you buy Lilly stock though, you should realize the company needs to continue growing earnings at a pace unheard of in the pharmaceutical industry to justify its sky-high valuation. If tirzepatide sales show any deceleration over the next few years, investors who buy Lilly stock at recent prices could suffer heavy losses.

Wall Street isn't wrong to raise Lilly's price target, but the stock may be riskier than everyday investors realize. If your risk tolerance isn't very high, it's probably best to watch this stock from a safe distance until its valuation falls to a sensible level.

Cory Renauer has no position in any of the stocks mentioned. The Motley Fool recommends Barclays Plc and Novo Nordisk. The Motley Fool has a disclosure policy.