Eli Lilly (LLY) is currently positioned as a better investment option compared to its industry peer Pfizer (PFE). This is due to various factors such as historical performance, revenue growth, profitability, and debt position. Over the last three years, LLY stock has outperformed PFE stock significantly, with a 450% increase compared to PFE’s decline of 15%. While PFE has shown better revenue growth in recent years, the future seems to belong to Eli Lilly, with an expected annual growth rate of 23% over the next three years compared to Pfizer’s projected 3% growth.
Pfizer experienced a surge in revenue due to high demand for its Covid-19 vaccine and treatment, but this trend reversed in 2023, leading to a 42% decrease in total sales. On the other hand, Eli Lilly’s revenue growth can be attributed to market share gains for key drugs like Mounjaro, Verzenio, and Zyprexa, with expectations for explosive growth in the coming years. Additionally, Eli Lilly has a solid pipeline potential, particularly in obesity drugs, which is reflected in its rising price-to-sales ratio.
In terms of profitability and debt position, Eli Lilly has shown a stronger performance than Pfizer. While Pfizer’s operating margin declined and debt levels rose due to the Seagen acquisition, Eli Lilly saw an increase in its operating margin and maintained low levels of debt. This indicates that Eli Lilly is more profitable and has a better debt position, making it a more attractive investment choice for investors.
From a valuation perspective, PFE stock appears attractive trading at a lower multiple of 2.8x sales compared to LLY’s multiple of 23.5x sales. However, the rise in valuation for Eli Lilly is justified given the expected uptick in revenues from key drugs like Mounjaro and Zepbound. With regulatory approvals for more indications likely in the future, there is potential for further upside in peak sales for Eli Lilly’s key drugs, making it a more favorable pick over Pfizer.
Overall, despite a significant 450% rise in the last three years, Eli Lilly is expected to continue outperforming Pfizer in the next three years. While both stocks may see an increase in value, the growth in LLY is projected to surpass that of PFE. Investors looking for potential growth opportunities in the pharmaceutical industry may find Eli Lilly to be a more promising investment choice based on its strong revenue growth, profitability, and future prospects.
