Sign InEli Lilly and Company: Technical and Fundamental Analysis Point to Overvaluation and Growth Potential
Summary
As of July 02, 2024, despite Eli Lilly's (NYSE: LLY) recent 0.84% price decline to $906.71 and its overbought status with an RSI14 of 71, the company's FDA approval for its Alzheimer's drug Kisunla bolsters long-term growth prospects, making it a 'Hold' amidst high valuation concerns, potential volatility, and significant investor interest.
Technical Analysis
Eli Lilly and Company (NYSE: LLY) closed at $906.71 on July 02, 2024, reflecting a 0.84% decline from the previous trading day. The stock's current resistance level stands at $909.04, which coincides closely with its recent price high of $912 and its year high of $916.83. Meanwhile, its support level is set at $781.10. Given its RSI14 of 71, the stock is considered to be in the overbought territory, which may suggest a potential for a near-term pullback.
The 50-day moving average of $813.09 and 200-day moving average of $691.06 indicate a strong upward momentum, confirmed by the bullish MACD of 34.64. With an ATR of 1.96, LLY exhibits moderate volatility. Today's trading volume of 4.53 million is significantly higher than its average volume of 2.64 million, hinting at heightened investor interest and market activity, possibly influenced by recent news events.
Fundamental Analysis
Eli Lilly has a substantial market cap of $861.74 billion. The recent FDA approval of its Alzheimer's drug, Kisunla, is poised to be a significant driver for future revenue and earnings. This approval is a major positive catalyst, aligning with the company's capacity for long-term growth in the biopharmaceutical space.
Despite these optimistic developments, LLY's P/E ratio of 133.93 is notably high, suggesting the stock is potentially overvalued. This valuation is reinforced by the discounted cash flow (DCF) calculation of approximately $296.87, which is substantially below the current trading price. The dividend yield stands at a modest 0.14%, suggesting that income generation through dividends is not a primary incentive for investors.
Short-term Prediction
For the next trading day (July 03, 2024), the positive momentum from the FDA approval could likely lift LLY’s stock price, overcoming the day's earlier resistance at $909.04. The high trading volume and bullish sentiment could further fuel this uptick.
Throughout the upcoming week, the stock may experience heightened volatility influenced by investor reactions to the recent FDA approval and scrutiny over drug pricing highlighted by political figures. However, the fundamental strength brought by new drug approvals should sustain bullish sentiments.
Intrinsic Value and Long-term Investment Potential
Evaluating LLY's intrinsic value against its current market valuation reveals a substantial gap, suggesting overvaluation. However, the pipeline strength, particularly with Kisunla's approval, underscores a promising long-term growth potential which could justify a premium valuation over time. Given the innovation in Alzheimer's treatment, LLY might experience expanded market opportunities and enhanced revenues.
Overall Evaluation
LLY emerges as a 'Hold' candidate. This evaluation balances the stock's strong momentum, recent positive drug approval, and the potential for long-term growth with its currently high valuation and P/E ratio. While attractive from a growth perspective due to innovative product developments, patient investors might seek a more favorable entry point reflective of intrinsic value.
