Our Analysis of Eli Lilly and Company (LLY)

Every Tuesday at HX Daily, we analyze one of the US stock market's biggest and most widely owned companies.

We analyze these companies using our “Quantamental” approach.

We have developed this analysis process over the last three decades. It is a quick way to analyze a stock's potential.

This is a reminder that our "Quantamental" analysis is not a formal stock recommendation but rather a quick analytical tool that gives an initial view on the stock in the short and intermediate term.

Since starting this analysis process in July, we have analyzed eight of the ten largest companies in the S&P 500.

Today, we analyze another of the top ten companies with our analysis of Eli Lilly and Company (NYSE: LLY).

The company was founded during the Civil War by Colonel Eli Lilly, a pharmaceutical chemist and Union Army veteran. Today, it is the largest pharmaceutical company in the world by market capitalization.

The stock has had a great run in recent years on the back of the GLP-1 drugs. These are diabetes treatments that have since been rolled out to help fight global obesity. Lilly owns the drug Mounjaro (or Zepbound for obesity) and is the leader in the sector.

Here is the analysis…

1. Technical Analysis

LLY has been a publicly traded stock since 1952 and has one of the longest records as a public company.

The company has a long track record of success, as evidenced by its performance over the last ten years.

Here is the chart of the stock over the last decade…

The stock has gone from roughly $60 per share to a recent high near $1000 per share. This is almost a fourteen-fold return and far better than the overall stock market.

The chart shows that the biggest part of that move has happened in the last few years.

The company has always executed well and been a good stock, but the weight loss drugs have sent the stock parabolic. Two-thirds of the move in the stock has happened in just the last couple of years.

Here is the recent stock price and RSI chart…

Recently, you can see that the stock has begun to consolidate. After hitting a new high in July, it got caught in the August downdraft and has since recovered.

Over the last few months, though, the stock has been flat. You can see this in the RSI data, too, where it is right in the middle of the range.

We think the stock is set up very well technically right now.

You have very well-established uptrends, both short-term and long-term. The stock has also had time to digest the parabolic move higher.

We think the stock looks like it is setting up to move higher.

TECHNICAL ANALYSIS = BUY

2. Earnings Revisions

Our readers know that we think the strongest driver of near-term stock price performance is whether companies beat numbers and see positive earnings revisions.

We refer to them as “earnings” revisions, but they can also be revenue revisions. We usually look at not only the most popular measure—earnings per share (EPS)—but also other measures, such as Earnings Before Interest, Depreciation, and Amortization (EBITDA).

Like most well-established companies, the EPS numbers are the most widely followed at LLY.

Here is a chart of the stock price versus the fiscal year 2025 EPS estimates for the company…

The green line shows the earnings estimates, and you can see they have been steadily moving higher. They have been +50% in the last couple of years, which is impressive for a company the size of LLY.

As we said above, stock prices closely track the direction of earnings revisions. This chart clearly shows this.

Companies with these kinds of positive earnings revisions also usually have a great track record of beating numbers.

Here is that table showing the company’s performance against the analysts earning estimates for the last five years…

The company has a solid track record of beating numbers.

Unlike some of its peers in the largest companies in the S&P 500, though, it has had a fair number of misses, especially in the last few years when it has been riding the wave of weight loss drugs.

In the case of LLY, these misses resulted from too much demand for the drugs. They couldn't keep up from a production perspective, meaning business was TOO good for them.

The company clearly has good operating momentum, and based on earnings revisions, we think it is a buy.

EARNINGS REVISIONS = BUY

3. Earnings Growth

The final measure we focus on is the actual growth in earnings.

While earnings revisions drive a stock higher in the short term, earnings GROWTH drives a stock higher in the long term.

In our INVESTING strategies, we look for companies that will grow EPS from $1 to $10. If you can find those stocks, you can make a LOT of money.

Here is the table for the EPS results of LLY over the last ten years…

The growth in earnings is impressive. They have grown ten-fold over the period.

Looking at the table in more detail, you can see that much of the growth has occurred in the last couple of years.

The company saw nice growth from 2014 to 2021 and almost tripled earnings. Over the next couple of years, though, it struggled to grow EPS.

That all changed with the GLP-1 introduction and earnings growth skyrocketing.

As we said before, this helped drive the stock higher.

We think they will continue this momentum in the near term, so we believe earnings growth makes the stock a buy until it changes.

EARNINGS GROWTH – BUY

Conclusion

LLY has been a strong operating and stock story over the last few years, propelled by its becoming one of the largest in the S&P 500.

Our personal view is that the GLP-1 drugs are one of humanity's momentous innovations of the last century. This is a BIG story with a long way to go.

All that being said, we have some caution around LLY.

These drugs DO eventually come off patent. The patent protection here is long, but these kinds of tremendous returns are going to bring a lot of competition.

We have not done an in-depth assessment of the competitive product launches and think it is difficult to make a precise assessment of when competition hits.

One nice aspect of our "Quantamental" approach is that we look at the data. Our view is that LLY will beat numbers until they no longer beat them.

Given the company's momentum, we recommend owning the shares until that momentum changes. Let the results drive your investing, and don't try to predict the future.

Just like with stock prices, trends in operating companies persist.

Based on these views, we think LLY is quite attractive right now and would buy the stock.