Growth trump card other than AI trading! LY.US (LLY.US) diet pills are relaying the release of new products, and J.P. Morgan raised the target price to $1,650

The Zhitong Finance App learned that J.P. Morgan Chase is further revising expectations for LLY.US (LLY.US)'s profit growth over the next few years. The research team led by analyst Chris Schott reaffirmed Eli Lilly's “overrated” (Overrated) rating and the bank's “preferred stock” status, and raised the target price from $1,500 to $1,650 in December 2027. There is still room for about 20.1% increase from the closing price of $1373.70 on October 29. The bank is optimistic not only about the current strong growth in diet drug sales, but also the long-term growth space brought about by the expansion of overseas markets, the increase in the penetration rate of obesity treatment in the US, and the relaying of new oral products. At a time when the AI capital expenditure cycle triggers the market to re-examine the valuation of technology stocks and the ability to deliver profits, Eli Lilly is becoming another main line of growth that Wall Street is focusing on.

By the close of the US stock market on October 29, Eli Lilly bucked the trend and surged 6.63%, while the Nasdaq 100 Index and the Philadelphia Semiconductor Index fell 1.38% and 1.42%, respectively. Behind the stock price performance, the most direct catalyst was the company's third-quarter results exceeding market expectations and a sharp increase in full-year revenue guidance. Eli Lilly's revenue and core diet drug sales were strong, further verifying the growth momentum of its metabolic business and providing a basis for J.P. Morgan Chase to improve its long-term profit forecast.

J.P. Morgan raised Eli Lilly's 2026 revenue and adjusted earnings per share forecasts to $91,884 billion and $35.91, respectively; in 2027, they raised them to $109.714 billion and $55.20, respectively, up 5.0% and 10.2% from the previous model, and raised the overall revenue forecast for 2027 to $6 billion for each year and beyond.

The bank's core research is that the increase in overseas Mounjaro sales, the increase in the penetration rate of obesity treatment in the US, and the gradual commercialization of new oral GLP-1 products will jointly extend Eli Lilly's growth cycle, enabling it to consolidate its leading position in the more than 200 billion US dollar intestinal insulin market. At the same time, clinical advances in the non-obese sector are also expected to expand the company's long-term revenue streams.

Price cuts haven't stopped expansion: Where is the growth in diet pills coming from?

In the third quarter, Eli Lilly's revenue was US$24.397 billion, up 39% year over year, about 7.9% higher than the LSEG analysts' unanimous estimate of US$22.61 billion quoted by Reuters; adjusted earnings per share of US$7.48, compared to US$7.02 in the same period last year, about 19.5% higher than the market forecast of US$6.26.

The two core brands continued to exceed expectations: Mounjaro, a weight loss and hypoglycemic drug, sold US$10.723 billion globally, up 65% year on year, higher than the agreed market expectation of US$10.16 billion; the flagship diet drug Zepbound sold US$5.352 billion globally, up 49% year on year, higher than the agreed market forecast of US$5.09 billion. According to the disclosed data, the two together contributed about 66% of the group's revenue and a year-on-year revenue increase of about 88%, indicating that Lilly's growth is still mainly driven by the core metabolic business.

The common active ingredient of Mounjaro and Zepbound is tirzepatide (tirzepatide), which is a glucose-dependent insulin-promoting polypeptide (GIP) and glucagon-like peptide-1 (GLP-1) dual agonist, and works by regulating blood sugar and appetite and intake. What J.P. Morgan values is the combination of clinical value and expansion of payment coverage to drive an increase in the number of patients actually treated.

In the third quarter, Eli Lilly's volume and price analysis showed that sales increased by 53%, offsetting the pressure of a 15% drop in actual prices; outside the US, Mounjaro's revenue was about US$5.7 billion, an increase of 93% over the previous year. J.P. Morgan predicts that Mounjaro's overseas revenue will grow from about 21 billion US dollars in 2026 to about 28 billion US dollars in 2027, while Zepbound will grow from about 20 billion US dollars to more than 25 billion US dollars during the same period.

This means that the bank's bullish logic does not depend on drug prices continuing to rise. In contrast, J.P. Morgan still assumes that prices will drop significantly during the rest of this decade, but patient expansion and sales growth are expected to outweigh the negative effects of price cuts, thereby driving overall revenue and profit growth.

Expanding health coverage is providing new evidence of growth. Management said that since the launch of the Medicare GLP-1 Bridge program in July, more than 500,000 people have received Eli Lilly drugs through the program, and about 70% of the newly enrolled patients have chosen Eli Lilly; after passing through the transition phase of the first batch of patients, about 80% of those participating in the treatment had not previously used pancreatic therapy. This means that the new health insurance coverage has not only changed payment channels, but also expanded the actual treatment population.

Oral administration of the small-molecule GLP-1 drug Foundayo (orforglipron) is expected to further lower the threshold of use. Unlike injections, this drug does not require injections, nor does it require medication arrangements around food and drinking water, providing another path for expanding the patient base and international market layout. However, its revenue for the quarter was 184 million US dollars, lower than the market forecast of 2168.6 million US dollars, which also shows that the strong sales of injections are still at a different stage from the commercial decline of oral medicine.

J.P. Morgan listed four sets of catalysts for Eli Lilly's subsequent growth: Foundayo's approval and marketing for type 2 diabetes, which is expected in late 2026 to early 2027; entering more than 40 international markets in 2027; the next-generation drug candidate retatrutide is expected to be marketed in late 2027; and the release of TRAILBLAZER-3 and EMBER-4 data for early-stage breast cancer in 2027.

In addition to the metabolic business, Eli Lilly's non-obesity treatment field has also seen a growth base. In the third quarter, sales of Jaypirca and Ebglyss increased 59%, respectively, and Kisunla increased 175%; revenue from the company's portfolio of key new products in the fields of immunology, oncology and neuroscience doubled.

Another layer of long-term value that J.P. Morgan values is that the cash and profits generated by the metabolic business can support the development and commercialization of more new products, thereby reducing the dependence of Lilly's long-term growth on a single product cycle.

The pivot point of the target price of $1,650: How does revenue expansion translate into profit and cash?

In J.P. Morgan Chase's forecasting model, Eli Lilly's room for growth is far more than the next quarter or two.

The bank anticipates that Eli Lilly's overall revenue from the pancreas business will grow from US$65 billion in 2026 to US$82 billion in 2027, and close to US$110 billion in 2030. The Group's revenue is expected to reach US$122.392 billion in 2028, with adjusted earnings per share reaching US$61.92; earnings per share further reached approximately US$74 and US$86 in 2030 and 2032.

Among them, J.P. Morgan Chase's forecast for Eli Lilly's 2027 adjusted earnings per share was $55.20, about 16.4% higher than Bloomberg's unanimous estimate of $47.44 at the time as shown in the report, which constituted an important difference in the bank's expectations of raising the target price.

Incretin (Incretin) is a hormone secreted by the human body from the intestines and involved in blood sugar regulation. The two main core hormones are GLP-1 (glucagon-like peptide-1) and GIP (glucose-dependent insulin-promoting polypeptide).

Notably, J.P. Morgan Chase's profit growth forecast does not depend on a continued rise in gross margin. The model predicts that Eli Lilly's gross margin for 2026-2028 will be approximately 84.2%, 84.0%, and 83.5%, respectively, while the sales management expense ratio will drop from 14.1% to 12.4%. This means that after the scale of revenue is expanded, cost dilution is expected to bring operating leverage and become an important source of profit growth.

At the same time, the profit increase in 2027 also includes the base effect of R&D expenses formed by large-scale acquisitions in 2026. Therefore, when analyzing future profit growth, it is necessary to distinguish between the improvements brought about by the expansion of the main business and the accounting impact of changes in expenses related to mergers and acquisitions.

Cash flow performance determines how high valuations this growth can support. J.P. Morgan predicts that Eli Lilly's free corporate cash flow (FCFF) will increase from US$32.55 billion in 2026 to US$39.168 billion in 2027 and US$48.793 billion in 2028, and assumes capital expenditure of US$6.5 billion for all three years. The above are all brokers' predictions. Based on the reported stock price, the predicted price-earnings ratios for 2027 and 2028 are 24.9 times and 22.2 times, respectively.

The target price of $1,650 given by J.P. Morgan Chase uses the cash flow discount method (DCF), using a weighted average cost of capital (WACC) of 8.5% and a sustainable growth rate of 2.5%, taking into account the gradual decline in existing products and incorporating risk-adjusted R&D pipeline value.

Its long-term confidence comes from double-digit growth expectations that continue until the early 2030s, and the risk of relatively limited patent and market exclusivity expiration over the next decade or more. However, whether the target price can be achieved still depends on whether sales growth, cost efficiency, and the success rate of new products can absorb the pressure of competition and policy price reduction, rather than simply maintaining a high valuation multiple.

The company raised its annual revenue guidelines, and the profitability of its main business continued to improve

Eli Lilly's strong performance in the third quarter was reflected not only on the sales side, but also on the full-year operating outlook. The company raised its 2026 revenue guide from US$85 billion to US$87 billion to US$91 billion to US$92 billion, increasing the median value by US$5.5 billion; the company-defined Performance Margin (Performance Margin) guideline was raised from 49.0% — 50.5% to 52.0% — 52.5%.

Notably, the adjusted earnings per share guidance fell from $35.50-$36.50 to $35-36. This is not a weakening of main business expectations; rather, the improvement in basic operations contributed $4.07 per share, which was offset by the impact of $4.57 per share brought about by the acquisition of R&D expenses (IPR&D) in the third quarter.

Research and development expenses (IPR&D) here specifically refer to the costs of Lilly obtaining assets such as drug projects that have not yet been developed through acquisitions and confirmed in the current period in accordance with applicable accounting rules, thus reducing current profits. Lilly's adjusted earnings per share caliber still includes such fees.

As a result, the company's revenue and operating margin guidelines have been revised to reflect that the profitability of the main business is still improving; expenses related to mergers and acquisitions are a phased drag on apparent earnings per share. Understanding the difference between these two effects can help determine the real changes in Lilly's current profit performance.

Wall Street cross-validation: injectable cashing drives upward revisions, oral medication determines the next round of increments

In addition to J.P. Morgan Chase, other institutions also adjusted their judgments on Eli Lilly after the earnings report was released, but their assessments of the room for stock prices to rise were inconsistent.

Jefferies maintained a “buy” rating and raised the target price from $1,440 to $1,610, which corresponds to an increase of about 17.2% compared to the closing price of $1373.70. Barclays's October 29 rating record maintained a target price of 1,400 US dollars, which corresponds to an increase of about 1.9%.

BMO analyst Evan Seigerman believes that Foundayo is still behind expectations, but Eli Lilly's strong performance in its broader commercial business reduced the importance of this shortcoming; Guggenheim analyst Seamus Fernandez emphasized that the cardiovascular metabolism business exceeded expectations and that Kisunla's potential to gradually grow into a major drug.

Overall, Lilly's adjusted gross margin for the third quarter reached 84.4%, and the company-defined profit margin reached 54.2%, an increase of 5.9 percentage points over the previous year, further verifying the profitability of its core business. At the same time, the company still needs to continue to invest in production expansion and R&D; this is not a growth story without capital expenditure.

Lilly's investment logic is extending from sales growth of single diet drug products to expanding patient groups, penetrating overseas markets, commercialization of new oral products, and relaying products in the non-obese field. What institutions such as J.P. Morgan Chase value is the profit base that has been formed in the existing metabolic business, and whether these growth drivers can be further transformed into continuous improvements in cash flow and profit forecasts.

For Eli Lilly, the key to the next phase is not only how many diet pills can be sold, but also whether the current market leadership can be transformed into continuous profit growth and the reliance on a single product cycle can be reduced through a new product relay. As growth assets other than AI trading receive renewed attention, Eli Lilly's ability to deliver long-term profits will also be the focus of Wall Street's ongoing evaluation.