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On Monday, HSBC analysts downgraded Eli Lilly (NYSE:LLY) stock from Buy to Reduce, significantly lowering the price target from $1,150 to $700. The revised price target represents a potential downside of 15.4% from the stock’s current market price of $884.54. The downgrade was driven by a reassessment of the company’s weighted average cost of capital (WACC), which increased from 5.9% to 6.9%. This aligns with InvestingPro’s analysis, which suggests the stock is currently trading above its Fair Value, with the company showing high valuation multiples across key metrics.
The HSBC analyst explained the change in WACC is due to an adjustment in the biopharma sector premium from 0.00% to 1.00%. The other components of the WACC calculation, including the risk-free rate (RFR) at 3.75%, equity risk premium (ERP) at 4.25%, ESG premium at 1.00%, and beta at 0.57, remained unchanged. The company’s current P/E ratio of 75.1 and market capitalization of $794.31 billion reflect its premium positioning in the market. For deeper insights into Eli Lilly’s valuation metrics and peer comparison, InvestingPro subscribers can access comprehensive financial analysis and valuation tools.
The new analysis utilized an adjusted present value (APV) approach to determine the revised target price. According to the HSBC analyst, the decision to downgrade Eli Lilly shares to Reduce was based on the perception that the stock is "priced for perfection" and there is a high potential for disappointment in the market.
Eli Lilly, a major player in the biopharmaceutical industry, has been closely monitored by investors and analysts alike. The downgrade by HSBC signifies a shift in expectations regarding the company’s future performance.
The analyst’s comments further elaborate on the rationale behind the downgrade, indicating a cautious stance towards Eli Lilly’s valuation. With the new target price set at $700, investors are now provided with a recalibrated outlook on the stock’s potential movement.
In other recent news, Eli Lilly has garnered attention with several significant developments. Cantor Fitzgerald reaffirmed its positive stance on the company, maintaining an Overweight rating and setting a price target of $975, highlighting the company’s strong performance in its GLP-1 product line. Meanwhile, Bernstein reiterated an Outperform rating with a $1,100 price target, emphasizing Eli Lilly’s strategic moves to expand its manufacturing capabilities in the U.S., including the production of its new growth driver, Orforglipron. BMO Capital Markets also maintained an Outperform rating but adjusted its price target to $900, reflecting broader macroeconomic pressures while noting Eli Lilly’s substantial gains in the incretin market.
Eli Lilly’s recent success includes the ACHIEVE-1 study results, which have been pivotal in evaluating Orforglipron for Type 2 Diabetes. The company is preparing for a potential launch in 2026, supported by a robust inventory strategy. Despite a reduction in BMO’s price target, the firm acknowledged Eli Lilly’s impressive prescription growth for Mounjaro and Zepbound, forecasting total revenue of $12.77 billion, which aligns with consensus estimates. Analysts from Cantor Fitzgerald expressed confidence in Eli Lilly’s potential to dominate the obesity market, projecting a significant market share by 2029-2030. These developments underscore Eli Lilly’s strategic positioning and growth prospects in the pharmaceutical industry.
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