While the average S&P 500 stock has corrected with the market average down 13% in three months, shares in Eli Lilly (NYSE:LLY) have stood strong, and were due for a nice pop when trade opened Dec. 19. There has been a pronounced turn to big drug stocks amid the tech rout. LLY stock itself is also delivering some welcome good news.
This was enough to send LLY stock up 3% as the market opened, before analysts got a chance to pick apart the announcement and see how realistic those predictions might be.
First on the list of claims is speeding time to market, said chief scientific officer Daniel Skovronsky in a press release. He hopes to get target molecules into human testing within three years, and cut the time between the start of human trials and market introduction to two years.
Second, LLY is claiming its new medicines are simply better than the competition. It says its Taltz, an immunosuppressant used against psoriasis, topped AbbVie (NYSE:ABBV) market leader Humira in a recent study, delivering more symptom improvement. But it should be noted that the study involved just 24 patients, and Lilly will have to follow up with expensive advertising to benefit.
Lilly is also hoping to deliver a new non-opioid pain reliever, buying assets from Hydra Biosciences. Lilly’s pipeline includes late-stage drugs against cancer, diabetes and in immunology, as well as against pain, and it expects new medicines like Taltz, Jardiance, Trulicity and Verzenio to represent 45% of revenues next year.
LLY Stock and the Analyst Hype Machine
With tech stocks and bank stocks dropping like stones, analysts are eager to hype the performance of drug-makers like Lilly stock, which is up 30% on the year.
Overall, however, the analyst community hasn’t rushed to embrace Lilly shares. The number of those suggesting you just “hold” it is up recently, and only 8 of 18 still have it on their buy lists.
Still, Lilly’s safety as an investment stands out in the present market. The dividend hike would take its yield to almost 2.4%, at its Dec. 19 price point of $109. Assuming it hits its profit targets for 2019, the new dividend should also be very affordable, at $2.58 per share.
Lilly has about $10 billion in long-term debt, which may cost about $500 million to support in 2019, but in September, the company had about $8 billion in cash and short-term instruments on the balance sheet. The balance sheet is supported by operating cash flows that have nearly doubled in the last three years, and which came to about $4 billion for the first three quarters of 2018.
The Bottom Line on Lilly Stock
The hype around LLY stock is a good indication of the market’s current weakness right now.
While new drugs promise big returns, the sheer number of new drug-discovery approaches and rollouts also assure growing competition, with insurers and international governments focusing on price over the absolute merits of compounds.
This doesn’t make Lilly a bad stock to own, especially in a bear market. But it does illustrate that a bear market is indeed what investors are facing right now.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, available now at the Amazon Kindle store. Write him at [email protected] or follow him on Twitter at @danablankenhorn. As of this writing, he did not hold a position in any of the aforementioned securities.