Forget Tesla: Eli Lilly can join magnificent seven club

Commentators are questioning whether it still makes sense to describe Tesla as one of the magnificent seven, given its plummeting stock price.

Kicking Tesla out of the club doesn’t mean the magnificent seven moniker must be retired, however; there’s an obvious replacement – drug maker Eli Lilly.

A fortnight ago, this column noted Lilly had edged ahead of Tesla’s market valuation. That gap has widened dramatically, with Lilly now worth over $700 billion (€650 billion) and Tesla falling below $600 billion.

Lilly shares enjoyed further strong gains following last week’s impressive earnings beat. It forecasts better-than-expected revenues of $40.4 billion to $41.6 billion in 2024, with at least $11 billion coming from its diabetes and weight-loss drugs.

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Like Tesla, which has long been valued like a technology stock more than a car company, heady growth expectations mean Lilly is valued more like a tech high-flyer than a drug stock. It trades on 131 times trailing earnings, 58 times estimated earnings, and 20 times its sales.

No other major drug company is valued as highly, not even Danish giant Novo Nordisk. which is also benefiting from excitement over weight-loss treatments.

[ Lilly expects strong 2024 profit on rising demand for weight-loss drug ]

Lilly’s valuation might suggest future growth is all priced in. However, bulls will argue the same valuation questions have long been raised about other members of the magnificent seven such as Nvidia, but their ongoing strength is a reminder that momentum is a powerful force in markets. Lilly shareholders will be hoping that like a true magnificent seven stock, momentum will continue to drive it forward.

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