Eli Lilly and Company’s (LLY) fiscal 2024 revenue guidance may tilt higher than expected on the momentum of its new weight loss drug while its earnings forecast may come in short amid multiple ongoing late-stage trials, Morgan Stanley said Thursday.
The brokerage increased its price target to $763 from $727 and reiterated an overweight rating on the stock ahead of financial results due Feb. 6. Eli Lilly is expected to report fiscal 2023 figures and provide initial guidance for the new year.
The brokerage sees 6% upside to consensus revenue estimates for 2024 on a “solid launch” of Eli Lilly’s weight loss drug Zepbound in the US, which it said is tracking ahead of the company’s blood-sugar regulation drug Mounjaro at a similar time point. The Capital IQ consensus is for fiscal 2024 revenue of $38.92 billion.
In 2024, Morgan Stanley now estimates Zepbound revenue of $6.1 billion, above the consensus view of $2.1 billion, according to the report. While Mounjaro volume has slowed since the Zepbound launch, the brokerage expects volumes of the Type 2 diabetes treatment to grow in 2024.
“We see the set up for the stock similar to the company’s 2023 guidance outlook – where revenue was slightly ahead of consensus and (earnings per share) was below, but investors generally focused on the top-line growth outlook nearer-term,” the brokerage said.
Morgan Stanley estimates that EPS could come in 3% below consensus as it foresees a significant step up in operating expenses after the company launched multiple large Phase 3 trials in 2023. Eli Lilly has said expenses for clinical trials tend to peak about a year into the program, according to the report. The analyst view on Capital IQ is for normalized EPS of $12.26 for the ongoing year.
Selling, general and administrative expenses are also expected to reflect recent launches that will be more extensive in 2024 than they were last year, Morgan Stanley said. Both research and development and SG&A are expected to grow at a greater level on a dollar basis year over year in 2024 than they did in 2023, according to Morgan Stanley.
“While we expect OpEx will be somewhat of a focus given that we project spending will increase meaningfully, given the attractiveness of the revenue opportunities we believe that the primary focus/driver of shares will be the top-line outlook,” the brokerage said.