Stock price correction of 20% creates a buying opportunity; Eli Lilly may soon join the "trillion-dollar club."

Eli Lilly (LLY.US) is a giant in the biotechnology field and one of the most transformative healthcare companies globally. This largest U.S. healthcare company by market capitalization is reshaping the pharmaceutical industry landscape with its flagship drugs—diabetes medication Mounjaro and weight loss drug Zepbound—both of which are the main pillars of the company's revenue.

According to Zhitong Finance APP, Eli Lilly's stock price has corrected by 20% over the past 30 days. Analysts believe this creates an excellent buying opportunity for long-term investors. The market has clearly overreacted to the trial results of its oral GLP-1 drug Orforglipron—the mid-term weight loss effect was only 11%, which is inferior to the performance of the injectable Zepbound (20%) and Novo Nordisk's Wegovy (approximately 13%).

The global obesity treatment market is expected to surge from $15 billion to $60 billion by 2030, with a compound annual growth rate exceeding 20%. As a leader in this field, Eli Lilly is expected to achieve dual growth in revenue and profit over the next five years. With improvements to existing products and the launch of new ones, this company is likely to join the trillion-dollar market capitalization club in the near future.

Seeking Alpha analysts have rated Eli Lilly as "Strong Buy," with a 12-month target price of $800. The recent correction is merely an overreaction by the market to the normal fluctuations in pharmaceutical research and development. This industry giant, backed by substantial capital, is fully capable of maintaining its leadership position in biotechnology.

Q2 Performance Demonstrates Strength

Eli Lilly delivered an impressive quarterly report: revenue surged 38% year-on-year, with global sales of Mounjaro increasing by 68% to $5.2 billion, and Zepbound skyrocketing by 172% year-on-year. As a result, the company raised the midpoint of its revenue guidance for fiscal year 2025 to $61 billion. Profitability was also strong: earnings per share soared 92% year-on-year to $6.29, with a gross margin rising to 84.3%. Management also raised the full-year earnings forecast to a range of $20.85 to $22.10.

After completing the acquisitions of SiteOne Therapeutics and Verve Therapeutics, Eli Lilly is continuously strengthening its R&D pipeline. These strategic layouts may optimize existing products and potentially give rise to new blockbuster drugs, driving diversified business development.

Undervalued Growth Potential

SA analysts believe it is only a matter of time before Eli Lilly's market capitalization exceeds $1 trillion. The current valuation does not fully reflect its market dominance and exceptionally high profit margins: the forward price-to-earnings ratio is 28 times, which, although higher than the S&P 500 average, is entirely reasonable considering its growth rate far exceeds that of its peers. Notably, its forward PEG ratio is only 0.87, representing a 51% discount compared to the industry average.

Even using the most conservative forecast (reducing the 2026 EPS expectation by 15% to $25.65), the forward price-to-earnings ratio still aligns with the S&P 500 average based on the current stock price of $639. In fact, Eli Lilly's EBITDA has grown by 59.8% over the past 12 months, operating cash flow has increased by 142%, ROE has risen by 42%, and dividends have also increased by 15% To achieve the leap from the current $600 billion market value to $1 trillion, a price increase of about 70% is required. According to analysts' forecasts, if the annual profit growth rate maintains between 15% and 30% over the next five years, the EPS is expected to reach $53 by 2030. Even if the current valuation level is maintained, the market value will exceed $1.2 trillion by then. As the potential of the weight loss market is fully recognized, the valuation premium may further expand.

Risk Considerations

One should be wary of short-term fluctuations that may arise from systemic market risks. Although the company is advancing business diversification, its current revenue still overly relies on two GLP-1 drugs. New competitors entering the market or regulatory changes could impact performance. Additionally, setbacks in the development of oral GLP-1 drugs and capacity bottlenecks are also potential risk points.

Trillion-Dollar Blueprint is Promising

Few companies can achieve over 25% annual growth while maintaining such high profit margins like Eli Lilly. In the rapidly expanding weight loss drug market, if it can maintain its leading position, a market value of $1 trillion is certainly within reach.

Eli Lilly's current stock price still has a 41% upside compared to the average target price of $907 set by 29 Wall Street analysts, and the $800 target price from SA analysts may even seem conservative. This fundamentally strong company is worth holding firmly for long-term investors