Shares of Eli Lilly could rise to $1,150, according to a Wall Street analyst. Is it a buy at around $945?

Actions of Eli Lilly (LLY 3.06%) they’re already up about 58% in 2024. Despite the advance, many Wall Street analysts believe the pharma stock can climb much higher. Bank of America analyst Geoff Meacham is so encouraged by the company’s recent progress in obesity, diabetes and Alzheimer’s that he thinks the stock can climb to $1,150 a share.

Meacham’s recently updated price target implies a 25% gain from the stock’s August 19 closing price, but that gain is far from guaranteed. Let’s weigh the risks this stock poses against the opportunities in its pharmaceutical business to see if it presents an acceptable risk-reward ratio for average investors.

Why Wall Street is bullish

Eli Lilly sells a handful of blockbuster drugs, but all attention is now focused on its new best-seller tirzepatide. This is the generic name of the treatment they market as Mounjaro for diabetes and Zepbound for weight management. Mounjaro won approval from the US Food and Drug Administration (FDA) in 2022, and Zepbound followed in November 2023.

Tirzepatide works on two receptors in the pancreas that regulate how hungry we feel, GLP-1 and GIP. Its biggest competitor is semaglutide, a drug Novo Nordisk (NGO 0.41%) markets like Ozempic and Rybelsus for diabetes and Wegovy for weight management.

Novo Nordisk’s diabetes and weight management drug has a long lead over Eli Lilly’s, but semaglutide only works on GLP-1 receptors. Tirzepatida’s unique mode of action seems to make it more effective, and this difference is helping it gain market share at a lightning pace.

Data source: Eli Lilly and Novo Nordisk. Table by author. Q1 = first quarter. YOY = Year Over Year.

Sales of semaglutide are growing rapidly for Novo Nordisk, but not as fast as Eli Lilly’s drug. Sales of Tirzepatide in the second quarter of this year were 86% higher than in the first quarter.

Investors can look forward to continued sales growth from tirzepatide. Evidence from clinical trials continues to give doctors more reasons to prescribe treatment than just weight control. In the 176-week Surmount-1 trial, adults with pre-diabetes who were randomized to receive tirzepatide were 94% less likely to progress to type 2 diabetes than the placebo group.

In June, Eli Lilly showed that tirzepatide can make a big difference for patients with obstructive sleep apnea. During the Surmount-OSA study, patients treated with tirzepatide had approximately 30 fewer airflow-restricting events per hour of sleep than patients receiving placebo.

Earlier this month, Lilly showed us that tirzepatide significantly improved symptoms in patients with heart failure with preserved ejection fraction and obesity. It also reduced their risk of developing dangerous heart failure by 38% compared to a placebo.

Tirzepatide is already responsible for 38% of Eli Lilly’s total sales, but it is not the company’s only growth engine. In the second quarter, the FDA approved Kisunla to slow the progression of Alzheimer’s disease dementia.

Is Eli Lilly stock a good investment right now?

Doctors battling sleep apnea, heart failure and diabetes could prescribe enough tirzepatide to boost sales from $17.2 billion a year now to more than $50 billion at its peak. Unfortunately, the market is already expecting a big increase. Shares of Eli Lilly have been trading at a nosebleed price of about 60 times forward earnings expectations.

If tirzepatida and Kisunla hit expectations, investors buying Eli Lilly at recent prices will come out miles ahead. If an unforeseen complication hinders their progress over the next two years, however, the stock could fall far from its lofty valuation.

Risk-averse investors should wait on the sidelines for a more attractive entry point. For those of you with a high risk tolerance, buying Eli Lilly stock right now could be a smart move.