Is Eli Lilly Stock Undervalued at $870? 1 Top Wall Street Analyst Thinks So

Eli Lilly (NYSE: LLY) has established itself as the leader in the weight-loss drug market. Since this area is projected to grow significantly over the next decade, the company's outlook seems bright. However, some investors are skeptical about the drugmaker's ability to generate superior returns over the next five years. The bears will point to Eli Lilly's valuation: the company trades at 25.7x forward earnings, well above the 17x average for healthcare stocks.

Even at current levels -- and with its shares changing hands for about $870 apiece -- some people think Eli Lilly remains undervalued. Let's look at what a Wall Street analyst recently said on the topic and what it means for investors.

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A bullish outlook

Terence Flynn, an analyst at Morgan Stanley, recently reiterated an overweight (or "buy") rating on Eli Lilly stock along with a price target of $1,327. That suggests an upside of about 52% from its current levels. If Eli Lilly can reach this price target within the next year, the stock will exceed the $1 trillion mark.

Why is Flynn so bullish on the stock? Partly because of Eli Lilly's dominance in the weight loss market. This comes even in the wake of recent coverage decisions by major insurers, including CVS Health, which decided to drop coverage of Eli Lilly's Zepbound, a move that could slow the medicine's adoption. CVS Health will, instead, cover the cheaper Wegovy, marketed by Novo Nordisk.

Still, Flynn thinks that Zepbound and Eli Lilly's new weight loss oral pill, Foundayo, could generate about $31 billion in combined sales in the U.S. next year, with that number potentially rising to $45 billion in 2030. For reference, Foundayo was recently launched just weeks ago, whereas Zepbound generated worldwide revenue of $13.5 billion in 2025. If Flynn is right, we can expect attractive top-line growth for Eli Lilly through the end of the decade (and perhaps beyond).

Should you buy the stock?

CVS Health's recent coverage decision highlights one of the major risks Eli Lilly faces. There are others. The company will encounter even more competition in the coming years. That means more options for patients and third-party payers, reduced pricing power, perhaps a smaller market share, and more. Despite these potential issues, my view is that Eli Lilly remains an attractive stock to buy. Here are three reasons why. First, the company's weight-loss pipeline is second to none.

Eli Lilly boasts some candidates in development that could prove even more effective than Zepbound. Perhaps the most promising is retatrutide, a medicine currently in phase 3 studies. This investigational therapy led to a mean weight loss of 28.7% (at the highest dose) in a 68-week late-stage trial. Although it's always challenging to compare across studies, that's much better than anything Zepbound has ever accomplished in a similar amount of time in clinical trials.

Even Eli Lilly's new weight loss pill, Foundayo, looks highly promising. Besides having no food or water restrictions -- unlike its only real competitor, oral Wegovy -- it is also undergoing several phase 3 studies across other potential indications. The list includes obstructive sleep apnea, hypertension, and more. Additional indications should help broaden the medicine's appeal and boost its sales. So, Eli Lilly should remain the leader in this market for a while.

Second, the company has a vast pipeline outside of its core area of expertise. Eli Lilly is doubling down on fields such as oncology, neuroscience, and others. The company has improved its pipeline in these and other niches through acquisitions. If it can launch more medicines beyond diabetes and obesity, the company will be better equipped to handle the increased competition it will face in its core market. Third, Eli Lilly is an attractive dividend stock.

Don't let the company's unimpressive forward yield of 0.7% fool you -- that's largely because the stock has crushed broader equities over the past five years. Eli Lilly has increased its payouts by 103.5% in this period. Considering its fast-growing top and bottom lines and excellent income program, Eli Lilly is a great stock for growth-oriented investors and dividend seekers alike.

Prosper Junior Bakiny has positions in Eli Lilly and Novo Nordisk. The Motley Fool recommends CVS Health and Novo Nordisk. The Motley Fool has a disclosure policy.