Why Eli Lilly Stock Just Jumped 8%

Stock of Eli Lilly (LLY 8.66%)the famed Indianapolis pharmaceuticals giant, jumped 8.3% through 12:45 pm ET after the company reported a massive earnings beat this morning.

Heading into the quarter, Wall Street analysts forecast Lilly would earn $2.60 per share on sales of $9.9 billion. Instead, Lilly reported a blockbuster $3.92-per-share profit, and sales of $11.3 billion.

Eli Lilly’s Q2 earnings

How did Lilly do that? Three words: Mounjaro, Zepbound, and… Verzenio.

That third word may not seem as familiar to you as the first two. It’s actually a cancer drug. But you’d have to have lived under a proverbial rock the past year to not have heard of Mounjaro and Zepbound, Lilly’s two blockbuster GLP-1 drugs for diabetes and weight loss. Together, they explain why Lilly stock nearly tripled in value in two years.

Sales of the (slightly) older Mounjaro tripled year over year. At $3.1 billion, it made up more than 27% of Lilly’s sales. Zepbound, which didn’t exist a year ago, has already leapt to $1.2 billion — more than 10% of total sales. (Verzenio sales grew 44%.)

In total, Lilly recorded 36% quarterly sales growth, and profits grew 68%.

Is Eli Lilly stock a purchase?

Expect more of the same as this year’s progress. Management raised its full-year sales forecast to roughly $46 billion, “primarily driven by the strong performance of Mounjaro and Zepbound.” Also thanks to these drugs, Lilly expects to earn about $15.35 per share.

That’s the good news.

The bad news is that $15.35 divided into Lilly’s $837 share price gives the stock a staggering 54.5 current-year P/E — which is a lot for a pharma stock. (Pandemic era darling Pfizer for example, costs less than 12 times forward earnings.) Granted, so long as Lilly keeps growing earnings at 60% and better, the stock will look attractive. But long-term, analysts see growth rates subsidizing to about 35% annually.

At that valuation, and this growth rate, it may be getting close to time to sell Lilly and count your winnings.