Argus analyst Katelyn Bayone believes shares of Eli Lilly and Co LLY are fairly valued at around $81, which prompted her to downgrade the stock from Buy to Hold.
According to Bayone, shares are trading near their 52-week high and also at a superior valuation versus its peers. In fact, the analyst doesn't think the stock deserves a premium valuation after the company lost patent protection on several key drugs through 2023 which represent around 40 percent of revenue. The company has also suffered a recent late-stage setback for baricitinib and solanezumab.
As such, Eli Lilly boasts fewer growth drivers in the near-term and will now become more reliant on its diabetes drugs Jardiance and Trulicity, both of which also face heightened competition.
Longer-Term Buy Rating
The analyst did note a Buy rating could be reinstated in the future if the company is able to show positive regulatory developments or better-than-expected sales from a new drug launch.
Bayone reiterated her 2017 earnings per share estimate of $4.13 and revenue of $22.0 billion. The analyst also reiterated her 2018's estimate of $4.35 per share but revised the company's revenue estimate lower from $22.7 billion to $22.2 billion.
Nevertheless, the analyst rated the stock as a long-term Buy rating given its longer-term pipeline opportunities and perhaps more important, a track record of launching successful new products but the stock's current valuation can't be ignored and was a major factor in the downgrade.
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