Eli Lily (NYSE: LLY) recently announced their first quarter 2022 results with solid EPS and revenue growth. Lilly’s first-quarter 2022 revenue growth increased 15%, with its core products leading the way, as well as its COVID-19 antibodies. This performance encouraged the company to update its guidance for 2022 to around $8.15 to $8.30 and revenue between $28.8 billion and $29.3 billion. Additionally, the company is slated for several potential product approvals as well as some new key pipeline events. I believe the company’s first quarter results and company updates should make LLY a safe haven in times of market volatility.
I intend to review the company’s first quarter results and company updates. Next, I’ll forecast what we can expect as we move towards 2022. Finally, I explain why LLY is a hot idea in my Seeking Alpha Marketplace service, Compounding Healthcare.
1st quarter profits
Lilly reported first-quarter non-GAAP EPS of $2.62, up 63% year-over-year. The company’s revenue was $7.81 billion, up about 15% year-over-year. Sales in the United States led the way, climbing 31% to $5.17 billion. However, non-US revenue fell 8% to $2.64 billion. The company’s gross margin increased 16% year over year.
The company attributed its first quarter performance to the approximately 20% increase in product volume. Core products accounted for 61% of total first-quarter sales, including strong sales of their diabetes products. Trulicity led the way with $1.74 billion in sales, a 20% year-over-year increase. Jardiance raised $419.4 million, up 34% year over year. In oncology, Verzenio sales were $469.4 million, up 74% year-over-year. The company also saw strong performances from Taltz, Olumiant, Emgality, Retevmo, Cyramza and Tyvyt. The company’s COVID-19 antibodies accounted for approximately $1.47 billion in revenue, up 81% year-over-year.
In terms of spending, the company reported $1.61 billion in R&D, down 4% thanks to lower development costs. On the other side, SG&A fell 1% to $1.56 billion for the quarter.
As a result, the company raised its 2022 revenue forecast to $28.8 billion – $29.3 billion from $27.8 billion to $28.3 billion. However, the company lowered its EPS forecast from $8.50 to $8.65 to $8.15 to $8.30.
Lilly released several updates on clinical, regulatory and business developments, such as the $700 million investment to launch the Lilly Institute for Genetic Medicine in the Boston Seaport.
However, I am watching the company’s reported data on its once-weekly GIP/GLP-1 agonist, Tirzepatide, which has been shown to produce 22.5% weight loss in obese or overweight adults in a phase III study. The data suggests that Lilly may have a unique asset that can combat many metabolic conditions/diseases.
Jardiance continues to produce excellent data, including its EMPA-KIDNEY Phase III trial, which will be terminated early due to clearly positive efficacy. Additionally, Jardiance has shown strong results for patients with acute heart failure in its Phase III EMPULSE trial. Additionally, the company reported that the FDA approved the label extension of Jardiance for heart failure, regardless of left ventricular ejection fraction. Additionally, one of the Company’s COVID-19 treatments, Bebtelovimab, received an EUA from the FDA for the treatment of adults and pediatric patients with mild to moderate COVID-19.
Other pipeline updates included data on lebrikizumab plus topical corticosteroids for moderate to severe atopic dermatitis. Phase III data showed that 70% of patients experienced at least a 75% reduction in disease severity at 16 weeks. For Olumiant, the company released data from a pivotal Phase III study that showed around 40% of adults with alopecia areata had at least 80% hair coverage at 52 weeks. Lilly also informed investors about the Phase III LUCENT-1 study of mirikizumab in ulcerative colitis. Data showed that nearly two-thirds of patients responded to mirikizumab at 12 weeks.
The company has numerous pipeline catalysts planned for the remainder of 2022, including multiple filings and regulatory actions.
These events should be important fundamental catalysts that will determine the future success of the company.
For earnings, the Street expects Lilly to see modest EPS growth in the second and third quarters…but a slight year-over-year decline in the fourth quarter.
Looking at the revenue estimates, we can see that the Street expects Lilly to post sequential growth and end with around $7.5 billion in the fourth quarter.
Ultimately, the Street expects the company to report annual EPS of $8.50, which would be up 4.18% from 2021. For revenue, the Street expects the The company will generate $28.91 billion in revenue this year, which would represent a 2.08% increase over 2021.
So it looks like 2022 will be another year of significant progress and earnings growth.
A great idea
The company demonstrates its ability to drive adoption of its leading drugs; lay the groundwork for key product launches and finalize bids for multiple assets around the world. At the same time, they advance the company’s pipeline to stockpile the materials needed for the next level of growth.
The company continues to deliver a healthy dividend and generate shareholder value. In fact, the company paid out nearly $900 million in dividends in the first quarter and completed $1.5 billion in share buybacks. As a result, the stock price has continued its upward trajectory with growth of around 60% over the past 12 months.
Given the current global macroeconomic environment and declining US GDP, I would say the company’s performance in the first quarter should give investors some optimism about the company’s ability to weather inflation and market volatility.
Given these points, LLY will continue to be a “Best Idea” in my Seeking Alpha Marketplace service, Compounding Healthcare.
Despite my bullishness on LLY, I have to admit that there are a few major risks that could backfire on the ticker for the rest of 2022. First, the stock is overvalued relative to the healthcare sector median.
Granted, the company is expected to reach these valuations in the coming years and the DCF model is priced right at LLY at $322.50. Still, there is the threat that the market sees LLY as overvalued or has limited upside potential at this point.
Another concern is chart technique and potential loss of momentum.
Improved daily LLY chart display (Trendspider)
Looking at the daily chart, we can see that the stock price recently hit an all-time high, however, we can see signs of a bearish divergence in the daily and monthly RSI. A bearish divergence is usually a signal of an impending reversal in the stock price, so it is possible that LLY is preparing for a sharp decline in the coming weeks.
My plan for LLY is comparable to my other healthy dividend names, which is to build up an outsized position over several years using an average dollar cost “DCA” strategy. However, I will be careful with my purchases given the current market environment. For this reason, I will implement a purchase threshold that will help avoid thoughtless overpaying. This threshold is considered a guideline to help make periodic investments as long as the stock price is trading below my multi-step dividend discount model “DDM” target of approximately $280 per share. I will also use a low sensitivity “DCF” discount cash flow model to get a discount price of ~$171.50 per share, this is where I will increase the size of my purchase.
At the moment LLY is trading just above my buy threshold so I will set a buy alert at $280 and look to hit the buy button as soon as I see a reversal setup of high conviction.