Morgan Stanley Downgrades Lilly On Valuation, Says Growth, Pipeline Potential Balanced By Stock Premium

Eli Lilly And Co LLY stock has outperformed its big pharma peers, prompting an analyst at Morgan Stanley to turn cautious on the stock.

The Lilly Analyst

David Risinger downgraded shares of Lilly from Overweight to Equal-weight and maintained a $148 price target.

The Lilly Thesis

Lilly's stock, having closed Wednesday's session at $146.22, has approached Morgan Stanley's price target, Risinger said in a Thursday downgrade note. (See his track record here.)

Lilly's P/E premium to the group has increased notably and is close to historical peaks, the analyst said. 

Morgan Stanley sees some risk to 2021 sales and earnings due to unemployment risks to U.S. commercial drug coverage. 

Risinger said he believes Lilly has outperformed due to the following reasons:

• A higher percentage of revenue from outpatient drugs that face less short-term, COVID-related disruptions than hospital and physician-administered drugs. 
• The company reaffirming 2020 guidance on March 23 while other pharma companies have suggested some COVID-related uncertainties. 
• Less dependency on new drug launches than some peers. 
• Lilly's status as a high-quality, durable growth company with less long-term patent exposure. 

Morgan Stanley estimates long-term, mid-single digit revenue and low double-digit EPS growth for Lilly.

The firm is optimistic concerning Lilly's diabetes franchise, which stands to benefit from pipeline candidates, including high-dose Trulicity and the novel drug tirzepatide, Risinger said. 

The Alzheimer's candidates are high-risk, high-reward prospects, the analyst said. 

"The stock's high multiple reflects these prospects, in our view."

LLY Price Action

Lilly shares were down 0.32% at $145.56 at the time of publication. 

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