Goldman Sachs Thinks Lilly (LLY) is Compelling With or Without Potential Blockbuster AD Drug Sola; Analyst Raises Rating to 'Buy'
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(Updated - September 27, 2016 8:31 AM EDT)
Goldman Sachs upgraded Eli Lilly (NYSE: LLY) from Neutral to Buy with a price target of $95.00 (from $89.00), implying upside of 19%. Analyst Jami Rubin thinks Eli Lilly is entering period of accelerated growth. Even without potential blockbuster Alzheimer's disease drug Sola, he thinks Eli Lilly can grow earnings by double digits over the next five years.
"We believe LLY is entering a long lasting period of accelerating revenue and EPS growth driven by a diversified late stage pipeline propelling many years of margin expansion. We view Solanezumab (Alzheimer’s asset) as high risk, albeit a very valuable asset if it works. But even without Sola, we forecast LLY can grow earnings by double digits over the next five years and by high single digits out to 2025 as it has among the most durable franchises in the industry. Based on our price increase analysis, LLY is the least exposed to above-CPI price increases, which we believe leaves it less vulnerable to potential future pressure," said Rubin.
Discussing catalysts, the analyst added, "We project $12.5 bn of new product sales by 2020 (without Sola) representing nearly 50% of total sales. While LLY’s operational performance started to show improvements in 2015, we expect the magnitude of improvement to accelerate with the launch of Bari, Taltz, Basaglar, Jardiance, and Trulicity. We ascribe a 35% (up from 25%) probably of success for Sola as we see improved chance of approval, but we recognize that investor expectations remain low and there are a range of outcomes. While Sola is a risky asset, our bull case scenario could lead to almost $7.5 bn in peak sales and super charge LLY’s earnings profile. While it is not our style to recommend buying in front of such a risky event, what’s changed is our increased confidence in the LLY story without Sola: we see a favorable risk (-9%)/reward (36%) given (1) the lack of dependence on Sola and (2) above-average and durable earnings growth."
Goldman Sachs option analysts recommend buying Jan 2017 $90 calls for 3%.
Shares of Eli Lilly closed at $79.52 yesterday.
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Create E-mail Alert Related CategoriesAnalyst Comments, Analyst EPS View, Analyst PT Change, Hot Comments, Hot Upgrades, Upgrades
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