Pharma Giant Eli Lilly (LLY) Stock is a Buy During the Coronavirus Economy

Eli Lilly LLY stock closed the first quarter above where it started, which was no easy task since the Dow just ended its worst quarter since 1987 and the S&P 500 suffered its biggest decline since the 2008 financial crisis. Lilly’s outlook also appears solid amid the coronavirus economic downturn. So let’s dive into why investors might want to buy LLY stock right now.

LLY’s Quick Hits

Lilly is a historic pharmaceutical powerhouse that saw its fiscal 2019 revenue jump 4% to reach $22.32 billion. The firm’s Q4 sales popped roughly 8%, which topped our Zacks estimate, driven by 10% volume expansion. LLY noted that many of its offerings launched since 2014, such as Trulicity, Jardiance, Emgality, and others, were key growth engines and sales contributors.

The company’s top-line expansion helped LLY’s adjusted fiscal year earnings jump 11%. Lilly then announced in February that it successfully completed its roughly $1.1 billion acquisition of chronic skin conditions specialist Dermira.

Lilly’s broader portfolio of medicines includes treatments that focus on everything from diabetes to cancer and cardiovascular health.

Investors should note that the company announced on March 23 that it will “delay most new study starts and pause enrollment in most ongoing studies” amid the coronavirus. "Lilly is working hard to alleviate some of the pressure that the global COVID-19 pandemic has placed on our healthcare system,” Lilly's chief medical officer said in a statement.

“We have repurposed our laboratories to conduct diagnostic testing for patients and we are researching potential therapeutics… By delaying most new study starts and pausing enrollment of new patients or healthy volunteers in most ongoing studies, we hope to ease the burden on participating healthcare facilities and allow physicians to focus more of their efforts on combatting COVID-19.”

Other Fundamentals

The nearby chart shows how much LLY stock has outperformed over the last two years compared to the large cap pharmaceutical industry, up over 80% against its industry’s 10% average—which also tops the S&P 500’s marginal decline. Lilly has also crushed the S&P 500 and its industry over the last decade.

More recently, LLY stock is up around 4% in 2020, against the S&P’s 20% downturn and the Large Cap Pharma Market’s 11% decline—which includes Pfizer PFE, Merck MRK, Johnson & Johnson (NYSE:JNJ) JNJ, and others. And Lilly stock closed regular trading Wednesday nearly 8% off its 52-week highs at $136 a share, which could give it room to climb.

LLY has justifiably traded at a premium compared to its industry over the last five years and it currently trades at 19.6X forward 12-month Zacks earnings estimates. This marks a discount against its one-year high of 22.8X and right in-line with its own five-year median.

The Indianapolis-based firm also consistently raises its dividend, with its 2019 payout up 15% against 2018. This trend continued with LLY’s new annualized dividend up 15% at $2.96 a share. LLY’s current dividend yield rests at 2.17% to blow by the 10-year U.S. Treasury’s 0.58% and roughly match the S&P's average, and it’s not artificially inflated by a falling stock price.

Bottom Line

Stocks tumbled on Wednesday after President Trump said at a press conference that the U.S. should stick to social-distancing measures ahead of what “could be a hell of a bad two weeks.” Some estimates at the moment suggest that the U.S. is at least two weeks away from peak coronavirus infections.

Therefore, selling and volatility are likely to remain despite the Fed’s help and the $2 trillion stimulus package. Still, longer-term investors should at least try to stay somewhat exposed to the market during tough times because if you aren’t, it is harder to catch the big bounces—which can lower overall long-term returns.

That said, investors should try to find stable, recession resilient stocks that offer income amid downturns, via dividend payments.

LLY’s longer-term earnings outlook has remained elevated since it reported its Q4 results, which helps it hold a Zacks Rank #1 (Strong Buy) right now. On top of that, our Zacks estimates call for Lilly’s adjusted fiscal 2020 earnings to jump 12%, with 2021 set to climb another 17% higher.

Plus, its revenue is projected to pop 8% and 5.6%, respectively during this stretch. And LLY is part of an industry that rests in the top 8% of our more than 250 Zack industries.

Just Released: Zacks’ 7 Best Stocks for Today

Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.1% per year.

These 7 were selected because of their superior potential for immediate breakout.

See these time-sensitive tickers now >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Johnson & Johnson (JNJ): Free Stock Analysis Report

Pfizer Inc. (NYSE:PFE): Free Stock Analysis Report

Merck & Co., Inc. (MRK): Free Stock Analysis Report

Eli Lilly and Company (NYSE:LLY): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research