Strong Earnings but Weak Stock: Can Lilly Get a Catalyst Boost from Medicare Coverage?
LLY holders, how’s the pain? Strong earnings but stock stuck in the dumps! Is this the bottom? And will Medicare finally cover weight-loss drugs and light a fire under Lilly? Let’s talk!
$Eli Lilly(LLY)$ has delivered impressive financial results in recent years. The leading healthcare company owns two high-performing GLP--1 drugs, Zepbound and Mounjaro, used for obesity and diabetes respectively, and demand has been strong among patients looking to lose weight and improve their health.
But Lilly’s growth story is about much more than these two drugs.
Expanding profit margins show the company is growing sales much faster than expenses, which likely means Lilly is producing drugs more efficiently. Management confirmed this view in recent earnings calls and partly credited improvements in production costs.
Of course, there are threats to Lilly’s profit margin expansion.
The company has noted lower prices realized for some products, which have offset some margin gains from better production costs. As more weight-loss drugs enter the market, these challenges could intensify.
Even so, there are reasons to believe Lilly can maintain relatively high profit margins in the medium term. Here are two key factors.
First, Lilly is investing heavily to expand production capacity. The company has invested $55 billion in this area since 2020. These investments may weigh on profits and margins in the short term but should ultimately help improve manufacturing capacity and lower costs, creating meaningful economies of scale.
Second, Lilly’s investments in artificial intelligence could also move the needle, although not immediately.
Current bearish arguments on Lilly stock suggest shares may have become too expensive and future demand could slow.
As a result, Lilly’s stock price has performed poorly lately and has been stuck in a slump.
But investors should not overlook this healthcare stock because its CEO believes a catalyst may be coming soon.
Medicare coverage could be a huge catalyst
Lilly CEO Dave Ricks expects Medicare will cover obesity drugs in the near future. Once that happens, “it moves the needle a bit.”
Right now, many people pay for these drugs out of pocket to save money, but with economic conditions far from ideal, if Medicare helps cover costs, it could lead to stronger growth numbers for the business.
At the same time, patients can become healthier by losing weight and may need less medical care in the future, which ultimately benefits the entire industry.
In reality, it will be a win-win situation.
Entering this week, Lilly’s stock has fallen more than 18% since the start of 2026, underperforming the S&P 500, which is down 7% over the same period.
GLP-1 drugs offer many potential benefits beyond weight loss, such as treating sleep apnea and lowering cardiovascular risk.
Although Lilly stock trades at a premium right now (38× forward earnings), it may still be an excellent long-term buy because the company has plenty of growth opportunities.
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