Eli Lilly Stock Gets A Double Downgrade And Price Target Cut By HSBC Over Valuation, Competition Concerns

HSBC noted that while the market has assumed a significant market share for Eli Lilly, these expectations may be revised in light of potential economic sensitivity to the adoption curve for weight loss drugs.

HSBC on Monday double downgraded Eli Lilly and Co. (LLY) stock to ‘Reduce’ from ‘Buy’ and also lowered its price target to $700 from $1,150.

The new price target represents a 21% downside from the stock’s closing price of $884.54 on Friday. Following the update, the stock traded nearly 1% lower on Monday morning.

While the market has assumed a significant market share for Lilly, these expectations may be revised in light of potential economic sensitivity to the adoption curve for weight loss drugs, HSBC noted, according to TheFly.

The firm believes that in the current economic environment, higher-valuation stocks are at a greater risk of seeing their multiples contract. Eli Lilly’s stock currently has a forward price-to-earnings ratio of about 40x.

HSBC also noted that competition will continue to remain stiff, referring to rival company Novo Nordisk, whose weight loss drug Wegovy is up against Lilly’s Zepbound.

“We think when the compounders are stopped in May for Novo’s brands, the script momentum gap between the two players might close,” HSBC analyst Rajesh Kumar wrote in a note, as reported by CNBC.

Last week, Eli Lilly also sued four telehealth companies selling compounded versions of its weight loss drug Zepbound and its diabetes treatment Mounjaro.

The pharmaceutical giant filed lawsuits against Mochi Health, Fella Health, Willow Health, and Henry Med on Wednesday, alleging that they deceived consumers about “untested, unapproved drugs.”

LLY stock is up by about 13% so far this year and by about 19% over the past 12 months.

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