Here’s what to keep in mind ahead of Eli Lilly’s earnings Thursday

Published Wed, Aug 3 20221:58 PM EDT

To succeed in today's inflationary environment, we see resilient consumer demand for a company's products as a requirement for ownership, and Club holding Eli Lilly (LLY) squarely fits this criteria. Eli Lilly is a global health care leader that creates in-demand, high-quality treatments for the world's most critical health challenges, serving more than 47 million people globally. Its therapies drive revenues due to their growing consumer demand, making the company a dominant player in the pharmaceutical field. Lilly will be reporting its second quarter financial results before the bell Thursday. It's expected to report revenue of $6.85 billion and deliver earnings of $1.70 per share. It's possible Eli Lilly could face a foreign exchange headwind for the quarter. Johnson & Johnson (JNJ), which has just a little bit more overseas exposure than Lilly, noted a stronger dollar for why it cut its full year adjusted profit forecast. J & J reported its Q2 results last month . Here's a breakdown of what to keep top of mind ahead of Lilly's earnings. Pipeline of products driving growth One of the main reasons we own Eli Lilly is for its strong growth in its impressive pipeline of medicines. Some of the existing key products that currently drive Lilly's volume growth are Trulicity and Jardiance for diabetes, Cyramza and Alimta for cancer and Forteo for bone muscle joint. Eli Lilly has also dedicated over 30 years to find Alzheimer's solutions. In June 2021, the FDA granted Eli Lilly a so-called breakthrough therapy designation for its Alzheimer's treatment, donanemab. The drug is currently being evaluated in a phase 3 study — and if approved, we believe its demand could build on Eli Lilly's growth. We are bullish on the drugmaker for its bright prospects in its type 2 diabetes drug Mounjaro (tirzepatide), one of Eli Lilly's treatments in its newer pipeline of medicines. The recent FDA-approval for tirzepatide was a major win for Eli Lilly. The announcement noted the treatment was more effective than other diabetes therapies it was compared with in clinical trials and that it has notable weight loss benefits. Tirzepatide not only reinforces Eli Lilly as a major player in diabetes treatment, but the drug also has the potential as an obesity treatment, a huge market opportunity the company can benefit from. Mizuho Securities estimates tirzepatide sales could be upwards of $14 billion by 2030. In Lilly's earnings Thursday, we'll be looking for updates on Mounjaro's initial launch and any roadmap to possible U.S. regulator-approval for its use to combat obesity. Bottom Line Eli Lilly is an Investing Club standout for its ability to expand its operating margins which makes the drugmaker a leader in earnings growth when compared to its peers. In the March to June quarter, LLY stock gained 13.3%, making it the Club's top performer in the second quarter . The stock has gained slightly under that year-to-date but has way outperformed the S & P 500, which has fallen about that amount in 2022. During a time where the Federal Reserve is hiking interest rates to pump the breaks on the economy to fight decades-high inflation, we view Eli Lilly as a defensive growth holding since it is in the health-care sector, which is resilient in the face of inflationary pressures, because generally consumers will keep buying medicines despite rising costs. In its better-than-expected first quarter , LLY delivered $7.81 billion, a 15% increase in revenue growth from the same time last year along with EPS of $2.62, a 63% year over year increase. The company delivered $1.47 billion from Covid antibodies in the first quarter alone. But now that we have largely gotten back to normal, there are lower expectations for Covid antibodies sales. Lower revenue is also expected from cancer drug, Alimta, given the loss of its patent exclusivity. We sold some of our position in LLY last week, locking in about a 26% gain on stock purchased in November 2021. LLY's fundamentals are strong and our investment thesis for the company is still intact, but after the stock saw a great run this year, we thought it was prudent to take some chips off the table in case we want to buy into other quality companies that fit our investment thesis. The stock fell nearly 3% on Wednesday, leading up to earnings. We don't advise buying ahead of the quarter but long-term, if it pulls back further from its current price of about $311, perhaps we can buy back what we sold higher. Over the next couple years, Eli Lilly is planning to launch five medicines including the aforementioned tirzepatide and donanemab, along with others including pirtobrutinib, lebrikizumab and mirikizumab which are expected to contribute to the company's top-tier, volume-driven growth over the next decade, according to Eli Lilly's website . Overall, we think Eli Lilly has strong future growth prospects given its best-in-class pipeline of therapies. (Jim Cramer's Charitable Trust is long LLY and JNJ. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

David Ricks, CEO, Eli Lilly

Scott Mlyn | CNBC