UBS says this stock is the 'best story' among U.S. large caps, sees more than 15% upside ahead

Published Mon, Aug 14 202311:59 AM EDTUpdated Mon, Aug 14 20231:07 PM EDT

Christina Cheddar Berk @in/christina-cheddar-berk-b864404/

Eli Lilly has had a great run, but UBS expects about 16% further upside in the coming months as a steady stream of positive news propels the stock higher and revenue growth accelerates. Calling it the "best fundamental story" among U.S. large caps, UBS analyst Colin Bristow on Friday lifted his price target to $612 from $526. The stock has already gained 47% year to date, mostly on the back of lofty expectations for weight-loss drug sales. LLY YTD mountain Eli Lilly shares are up about 47% year to date. Bristow said the valuation is warranted due to Eli Lilly's expected five-year top-line compound annual growth rate of 18%, which is an outlier in the sector. A stocked pipeline By the end of this year, U.S. Food and Drug Administration approvals are expected for Mounjaro as an obesity treatment and for donanemab for Alzheimer's disease, Bristow said. While both of those drugs have received a lot of positive attention, Eli Lilly has other products in the pipeline as well that could also serve as stock catalysts. There's mirikizumab, a treatment for ulcerative colitis that could be approved by the European Union and resubmitted in the U.S. by the end of this year, the analyst said. Approval of lebrikizumab, an atopic dermatitis treatment, is expected in the fourth quarter, while Jaypirca could get the nod to treat patients with chronic lymphocytic leukemia by year-end, he added. Bristow also expects data for its Crohn's disease treatment by year-end, as well as readouts on Verzenio for prostate cancer. By 2024, Eli Lilly is expected to submit data for a cell therapy for Type 1 diabetes. Finally, by the middle of next year, Bristow expects top-line results from the phase 2B study of bimagrumab for obesity and overweight patients who do not have Type 2 diabetes. Eli Lilly announced plans in July to acquire Versanis , the developer of bimagrumab, a monoclonal antibody that is expected to help patients lose weight without eroding muscle mass. Bristow's price target is above the average target of $543.49 on Wall Street, according to FactSet, and much of his optimism is centered on the company's potential to treat obesity and overweight. The brakes are off According to the analyst, Novo Nordisk's Select trial "took the brakes off market size" potential for Eli Lilly's Mounjaro. That study, which has yet to be peer reviewed, showed a 20% reduction in cardiac events such as stroke and heart attack when patients took Novo's semaglutide. Many analysts expect this study will help convince health insurers to provide coverage of weight-loss drugs , which will help Eli Lilly as well. Bristow now expects peak sales for Mounjaro of $40.8 billion, up from $35.8 billion. There's potential for even more upside if the drug adds other indications such as renal treatment, he said. "Supply remains the key near-term risk to the story but ultimately, this is a high quality problem that LLY appears to be on top of," Bristow wrote. — CNBC's Michael Bloom contributed reporting.