Eli Lilly (LLY) - Get Report shares fell Tuesday but less than the overall market after UBS analyst Navin Jacob downgraded the drugmaker’s stock to neutral from buy but raised his share-price target to $158 from $157.
Lilly’s valuation is now fair after the stock soared about 30% from its March 23 low, he wrote in a report. The company’s price-to-earnings ratio is about 65% higher than its peer group, Jacob said.
For the short term, Lilly has the “best growth profile in sector,” and for the long term it has the “lowest patent expiry exposure in the group,” he said.
Lilly’s trailing P/E ratio is 31.81, beneath its five-year average of 49.91, according to Morningstar. Its forward P/E ratio is 23.58, compared to the five-year average of 19.71.
Jacob said that his prior buy rating stemmed from the strength of Lilly’s Trulicity diabetes medication and his anticipation of rising profit margins amid new drug launches, according to The Fly.
That has now played out, and consensus earnings estimates are close to his, Jacob said.
Morningstar analyst Damien Conover thinks last month’s selloff in pharmaceutical shares was overdone.
“We have lowered our Big Pharma and Big Biotech fair value estimates by almost 2% in aggregate, much less than the stocks have declined as a result of disruptions caused by the coronavirus outbreak,” he wrote in a report April 6.
“The high need for drugs should support continued demand and supply. Also, we expect new treatments and vaccines to reduce the long-term impact of the virus.”
Lilly stock recently traded at $153.61, down 2.65%. The S&P 500 fell 3.12%.