Eli Lilly's strong quarter, promising obesity drug data show why we like the stock

Published Thu, Apr 28 20223:58 PM EDT

Eli Lilly (LLY) reported better-than-expected first quarter earnings Thursday morning. Revenue rose 15% year over year to $7.81 billion, exceeding estimates of $7.39 billion. Adjusted earnings per share of $2.62 — up 63% year over year — handily beat estimates of $2.32. Excluding revenue from chemotherapy alimta, which lost exclusivity, and Covid antibodies, Eli Lilly's revenues increased 10% for the quarter and it was volume-driven growth. The adjusted operating margin was 33.4%, representing an increase of about 10 percentage points year over year, driven by higher gross margin and lower research and development expenses for Covid antibodies. Bottom line It was another strong quarter and fantastic pipeline update from Eli Lilly, a best-in-class name in the pharmaceutical industry thanks to its volume-driven growth, limited loss of exclusivity risk, valuable pipeline and history of operating margin expansion. We believe the 5% rise in the stock Thursday is appropriate given the strength of the core business and multibillion dollar sales potential of tirzepatide for obesity. But longer term we think LLY can continue to work higher, and we would love to see the stock pullback as part of a broader market selloff to upgrade our rating back to a 1. Selected products Here's a rundown of Lilly's key products, which in the first quarter collectively grew revenues 14.7% year over year. Trulicity revenue of $1.74 billion missed estimates of $1.8 billion Cyramza revenue of $230.3 million missed estimates of $256 million Jardiance revenue of $419.4 million exceeded estimates of $401 million Taltz revenue of $488.1 million missed estimates of $532 million Olumiant revenue of $255.6 million missed estimates of $287 million Verzenio revenue of $469.4 million exceeded estimates of $430 million Emgality revenue of $149.3 million missed estimates of $163 million Tyvyt revenue of $85.5 million missed estimates of $88 million Retevmo revenue was $41.8 million edged out estimates of $41 million Other notable products: Covid antibodies' revenue of $1.47 billion for the quarter, exceeding estimates of $1.13 billion, and the main source of the overall beat in the quarter. Forteo revenue of $137.4 million missed estimates of $159 million Pipeline update The biggest news of the day was not the quarterly numbers. It was the results from a phase 3 trial of Eli Lilly&