Eli Lilly and Company (NYSE: LLY) shares slipped nearly 2% on Monday, closing at $867.62, after HSBC issued a rare double downgrade and sharply reduced its price target for the pharmaceutical giant.
The downgrade, from “Buy” to “Reduce,” was accompanied by a price target cut from $1,150 to $700, signaling a more cautious outlook on the stock’s valuation and future growth prospects.
HSBC’s move comes as concerns mount over Eli Lilly’s elevated valuation in the current economic climate. The company’s forward price-to-earnings ratio stands at approximately 40 times, significantly higher than the S&P 500’s average of about 20.
HSBC analyst Rajesh Kumar highlighted that equities with such high multiples are more vulnerable to contraction, especially amid macroeconomic uncertainty and shifting investor sentiment. The new $700 price target implies a potential downside of more than 19% from the previous close, underscoring the risk perceived by the bank.
The downgrade also reflects skepticism about the market’s optimism for Eli Lilly’s weight-loss drug pipeline, particularly orforglipron, its next-generation oral GLP-1 candidate. HSBC cautioned that expectations for orforglipron may be inflated, especially given anticipated fierce competition in the diabetes and obesity treatment markets.
The analyst pointed out that higher discontinuation rates at the top dose for type 2 diabetes could impact compliance and commercial uptake compared to injectable alternatives.
Despite these concerns, Eli Lilly remains a leader in the fast-growing GLP-1 drug segment, with blockbuster products like Mounjaro and Zepbound driving significant revenue growth. However, the broader competitive landscape is intensifying, especially with rivals such as Novo Nordisk maintaining a strong presence.
Additionally, macroeconomic headwinds and potential regulatory changes, including new U.S. tariffs and Medicare reforms, are contributing to a more cautious stance among some analysts.
While HSBC’s downgrade has weighed on sentiment, the consensus among Wall Street analysts remains more optimistic, with many maintaining price targets well above current levels. Nevertheless, the recent slip in Eli Lilly’s stock price reflects the market’s sensitivity to valuation concerns and the evolving competitive environment in the pharmaceutical sector.
As the company prepares to report earnings and provide further updates on its drug pipeline, investors will be closely watching for signs of sustained growth and resilience in the face of these new challenges.