We recently added Ely Lilly (LLY) to client accounts that employ Northlake’s individual stock strategy.  LLY fits the profile we have been looking for to add to the widely held stock portfolio: blue chip financial strength, above-average long-term growth with a reasonable valuation, and diversification from consumer discretionary and consumer technology.  We believe LLY can sustain average annual earnings growth of 15-20% over the next five years, starting with growth of 65% and 35% in 2025 and 2026, respectively, decelerating to 10% from 2029 through 2032.  This growth rivals the best technology companies with AI exposure for a P-E of 25 times 2026 estimated earnings.  We think the P-E can hold for the next few years given the premium earnings growth.  Applying a 25x P-E multiple to analyst estimates of $36 in 2027 earnings gets the stock to $900, up 20% from current prices.

LLY shares traded as high as $970 in September before concerns grew about Trump administration policies including tariffs and price controls for pharmaceutical companies.  While these policies create risks, we feel the pullback in the shares already reflects the concern for new health care policies.

During the pullback, LLY’s weight loss compound, Zepbound, has moved passed Novo Nordisk’s Wegovy (Ozempic) in market share thanks to better weight loss outcomes and a cheaper price.  LLY also has a clear lead in developing a weight loss pill that would expand the market.  Current shots require cold storage distribution which is not available in many countries.  A pill also offers upside from the 15-20% of patients who indicate a resistance to self-administered shots as the reason for not using Zepbound or Wegovy.  A pill also could serve as a maintenance drug for patients who complete a treatment of shots and need to continue treatment to sustain weight loss.

While weight loss drugs are driving LLY’s earnings growth and valuation, the company has a good track record and successful drugs away from obesity.  Zepbound was developed for diabetes where there is still significant upside to expand the treatment population and gain market share.  Zepbound also has shown benefits for patients with cardiovascular, kidney, and liver disease. LLY has current drugs and pipeline drugs for breast cancer, immunology, and liver diseases.  The massive success of Zepbound gives the company a competitive advantage for investing in and acquiring drug treatments across most therapeutic areas.

LLY is widely held by clients of Northlake Capital Management, LLC, including in Steve Birenberg’s personal accounts.  Steve is the sole proprietor of Northlake, a registered investment advisor.  Northlake’s regulatory filings can be found at www.sec.gov.