Why Eli Lilly's Q2 Results May Trigger a Catch-Up Rally
Why Eli Lilly's Q2 Results May Trigger a Catch-Up Rally
The stock lags behind the S&P 500 but the earnings announcement could serve as a catalyst for a breakout
- Eli Lilly Q2 earnings is scheduled for Thursday, before the market open.
- Medicare may soon cover Zepbound, offering a big tailwind to revenue.
- The stock has lagged behind the S&P 500 since April, potentially setting the stage for a catch-up trade if the results impress investors.
Eli Lilly (LLY) is scheduled to report second quarter earnings on Thursday, before the market open. The stock was up about 0.5% through the trading week as of this afternoon as the broader market recovered following last week’s jobs report.
The pharmaceutical company has seen big wins in recent years from its tirzepatide products, which include Mounjaro and Zepbound.
In the first quarter, Mounjaro contributed nearly $4 billion in revenue, increasing over 100% from the previous year, while Zepbound brought in $2.3 billion, nearly quadrupling from the $517 million it did a year ago. Combined, those two drugs contributed nearly 50% of Eli Lilly’s growth from the year before.
Now, investors are anticipating that Zepbound may gain Medicare coverage for weight management under a government pilot program, which would significantly expand the drug’s market access. Without insurance, Zepbound can cost over $700 per month, making it inaccessible to many. Currently, Zepbound is only Medicare-approved to treat obstructive sleep apnea in obese adults.
However, Medicare is also investigating Wegovy and Ozempic, two drugs from Novo Nordisk (NVO) that compete with Lilly’s weight-loss drugs. Still, gaining Medicare coverage would undoubtedly boost sales for Lilly and likely be seen as a major tailwind for investors.
Lilly also has an intriguing pipeline that includes an oral GLP-1 drug called Orforglipron. The company announced positive Phase 3 results in April, making it the first oral small molecule GLP-1 receptor agonist to complete the critical step. Indications for weight loss and type 2 diabetes are expected later this year and next year.
Analysts expect sales could top $10 billion by 2030.
What do investors expect?
Analysts expect Lilly will post earnings per share (EPS) of $5.60 on $14.7 billion in revenue, according to TradingView. Last year, EPS came in at $3.92 on $11.3 billion in revenue. That would also represent an increase from last quarter’s EPS of $3.34 on $12.73 billion in revenue.
Analysts are mostly bullish on the stock, with 25 “strong buy” and “buy” ratings, three “hold ratings,” one “sell” rating, and one “strong sell” rating. The average one-year price target on the stock is $989, representing a 29% increase from today’s $767 stock price.
Trading Eli Lilly earnings
Eli Lilly traded with an implied volatility rank (IVR) of 39.2 today, Aug. 5. That means volatility in the stock is below average compared with the past 12 months of trading. The options market expects an implied move of +/- 47.14 points, or 6.15% of today’s stock price.
The stock is up about 13% since its April lows, which lags behind the S&P 500’s 30% gain over the same period. It’s trading below its 50- and 200-day simple moving averages (SMA), although it has put in a series of higher lows since April. The underperformance since April vs. the S&P 500 may allow for a catch-up trade if the results impress.
Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. @fxwestwater
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