The global obesity treatment market is expected to reach over $77 billion by 2030, driven by rising obesity rates and the need for effective weight loss solutions. With World Health Organization (WHO) estimates indicating that 750 million adults worldwide are living with obesity, pharmaceutical companies have been developing innovative new drugs to tap into this lucrative market.
Against this backdrop, Danish drugmaker Novo Nordisk (NVO) has made major inroads with its injectable obesity drug, Wegovy, and its diabetes treatment, Ozempic - used off-label for weight loss. The blockbuster drugs have fueled massive revenue growth at NVO, propelling it to become Europe's most valuable stock by market cap in 2024.
That said, investment bank Morgan Stanley seems cautious on Novo Nordisk stock after its 72% rally over the past 52 weeks. The brokerage firm recently reiterated its $120 price target on NVO, which is a slight discount to the current share price.
However, Morgan Stanley analysts see more upside potential for two rival drug stocks with competing obesity treatments to rival NVO's - namely, Eli Lilly (LLY) and AstraZeneca (AZN). Read on to learn what Morgan Stanley is forecasting for these two competing weight-loss stocks.
#1. Eli Lilly and Company Stock
Eli Lilly and Company is a global pharmaceutical leader specializing in diabetes care, immunology, oncology, and neuroscience. The company officially entered the obesity treatment market with the approval of its drug Zepbound (tirzepatide) in early 2024. The treatment is based on the same active ingredient as Lilly's existing diabetes drug, Mounjaro.
LLY stock has enjoyed bullish momentum so far in 2024, outpacing the performance of the broader market on positive expectations for Zepbound. The shares are up roughly 30% year-to-date, compared to a rise of 6.9% for the S&P 500 Index ($SPX). Over the last 52 weeks, LLY is up an impressive 143%.
In addition to strong growth, Lilly also offers shareholders a modest but consistent dividend. The current dividend yield stands at 0.68%, based on quarterly payouts of $1.30 per share. The dividend is backed by nine years of consistent growth.
In its Q4 2023 earnings results on Feb. 6, Lilly beat consensus expectations by reporting adjusted EPS of $2.49, representing substantial growth over the year-ago quarter. Revenue of $9.35 billion also topped Wall Street's estimates.
On Feb. 21, Lilly announced plans to expand manufacturing capacity for both drugs, though it expects demand to continue outpacing supply in 2024. The company also recently announced positive late-stage trial results showing Zepbound's chemical backbone, tirzepatide, reduced liver fibrosis progression in patients with metabolic dysfunction-associated steatohepatitis (MASH). This suggests the GLP-1 drug class could play a role in treating additional diseases beyond obesity.
Analysts are overwhelmingly bullish on Lilly stock, which has a consensus “Strong Buy” rating on Wall Street. Out of 21 analysts in coverage, 18 rate it a “Strong Buy,” with 1 “Moderate Buy” and 2 “Holds.” The average 12-month price target stands at $743.95, representing a modest discount to current levels.
As for Morgan Stanley, the brokerage firm recently backed its “Buy” rating and Street-high $950 price target on LLY, indicated expected upside of 26% for the pharma stock.
#2: AstraZeneca PLC Stock
AstraZeneca PLC (AZN) is one of the world’s leading biopharmaceutical companies, with a broad portfolio of medicines addressing cancer, cardiovascular disease, diabetes, and respiratory illnesses. The company's core products include blockbuster cancer therapies Tagrisso, Imfinzi, and Lynparza, which have driven strong growth.
As a relatively new entrant to the growth field of obesity treatments, AZN has had a fairly quiet start to 2024. The shares are off 3.2% on a YTD basis, lagging the broader equities market.
AstraZeneca also offers an attractive dividend to income investors. The current dividend yield is 2.97%, well above the sector median of 1.58% for healthcare stocks.
In its latest quarterly results posted on Feb. 8, AZN reported that Q4 revenues climbed 18% year-over-year to reach $12.02 billion, while adjusted EPS of $1.45 fell short of estimates.
Seeking to bolster future growth, AZN recently secured exclusive global rights, except in China, to develop ECC5004 - a promising new oral treatment for obesity and diabetes from Chinese partner Eccogene. ECC5004 yielded encouraging weight loss signals in early-stage testing. Given the surging demand for obesity treatments, this drug could become a new pillar in AstraZeneca’s pipeline.
Separately, AZN also received a welcome regulatory boost as the FDA just approved its cornerstone cancer medication, Tagrisso, in combination with chemotherapy for certain lung cancer patients. This green light came after clinical data demonstrated the combo lowered disease progression/death risks versus the use of Tagrisso alone. This latest advance lays the groundwork for potentially reaching more patient groups.
Among the 11 analysts covering AZN, 8 rate the stock a “Strong Buy,” 1 rates it a “Moderate Buy,” 1 has a “Hold” rating, and 1 has a “Strong Sell” rating. The average 12-month price target stands at $80.14, representing 22.7% upside from current levels. One of those “Buy” ratings belongs to Morgan Stanley, which has an $85 price target on AZN - implying an expected premium of about 30.1%.
The Bottom Line on Obesity Treatment Stocks
Though Novo Nordisk's Wegovy leads obesity treatment sales for now, Morgan Stanley sees Eli Lilly and AstraZeneca narrowing the gap quickly. With obesity rates still surging globally, demand for effective medications promises lucrative growth. Backed by positive clinical data and Wall Street's bullish outlook, LLY and AZN stocks are compelling investment options to consider beyond dominant industry player NVO.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
