Top Investment Picks: Eli Lilly vs Novo Nordisk – A Detailed Analysis of Growth, Valuation, and Profitability
Both pharmaceutical companies have shown strong growth in their GLP-1 diabetes drugs and weight loss medications, segments with high market potential and valued accordingly.
American giant Eli Lilly has surged nearly 53% since the beginning of the year to a market cap of over $800 billion, ranking among the top ten US companies alongside tech giants like Apple and Microsoft.
Eli Lilly’s revenue and earnings in the second quarter exceeded analysts’ expectations, leading to a stock price jump of over 9%.
Danish powerhouse Novo Nordisk, the largest company in the Nordic region and Europe, has seen a 29% increase in its stock value this year, with a market cap of over 4,000 billion Danish kroner.
However, Novo Nordisk’s recent report disappointed investors, causing a 7% drop in its stock price due to lower-than-expected sales of the weight loss drug Wegovy.
Eli Lilly’s Profit Revision
Eli Lilly’s forecasts have been revised upwards by analysts after a significant increase in revenue and earnings per share in the latest quarterly report.
Analysts have raised Eli Lilly’s revenue forecast by 5% for 2024 and 2025, with an impressive 16% increase in earnings per share for 2024 and 7% for 2025.
On the other hand, Novo Nordisk has seen marginal profit adjustments, with analysts revising revenue forecasts slightly downwards for 2024 and maintaining almost unchanged earnings per share projections.
Valuation
Despite the optimistic profit forecasts, Eli Lilly’s P/E ratio for 2024 stands at 58, indicating high market expectations. It decreases to around 45 for 2025 earnings.
Novo Nordisk, on the other hand, is valued much lower with P/E ratios of 40 and 32 for 2024 and 2025, respectively. Other valuation metrics also favor Novo Nordisk, with a dividend yield double that of Eli Lilly’s.
Profitability
Novo Nordisk excels in profitability, maintaining higher EBIT margins for 2024 and 2025, as well as a significantly higher free cash flow margin compared to Eli Lilly.
Furthermore, Novo Nordisk outperforms Eli Lilly in return on assets (ROA) with impressive rates of 28% and 30% for 2024 and 2025, showcasing superior profitability.
Analyst Perspective
While Eli Lilly has a target price of $966 with an 8% potential upside, Novo Nordisk’s target price is 965 DKK, offering a 5% potential increase.
Analysts are mostly bullish on both stocks, with Eli Lilly receiving 83% buy recommendations and Novo Nordisk garnering 69% buy ratings.
Conclusion
Eli Lilly presents higher growth prospects and valuations, with analysts showing more optimism towards its future performance. On the other hand, Novo Nordisk boasts greater profitability and capital efficiency, making it an attractive choice for investors prioritizing stability and dividends.
Investors seeking rapid growth may favor Eli Lilly, while those prioritizing profitability, lower valuations, and higher dividends might lean towards Novo Nordisk.
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Analysis:
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