This week’s Stock of the Week is a pharmaceutical company that’s divesting and acquiring to focus for the future.

Cure Creator

Eli Lilly and Company (LLY) is an exceptionally innovative pharmaceutical firm. It is growing mainly through new products rather than by raising prices on older ones and so is largely insulated from political controversies about rising drug prices.

Lilly, based in Indianapolis and in business since 1876, has a strong foothold in diabetes treatment, which produced $4 billion of revenue in 2013 and should bring in $20 billion by 2020. Lilly spun off its animal-health business last September to focus strictly on human health. It is now increasing its commitment to treating cancers by tweaking the immune system, a fast-growing research area.

As part of that, Lilly recently agreed to acquire Loxo Oncology for $8 billion to get that firm’s cancer treatments. There has been some investor concern over the cost of the acquisition, but these concerns are overblown since Lilly generates $6 billion in free cash flow a year. Revenue was $22.9 billion in 2017 and $24.5 billion in 2018 and likely will be $25.3 billion this year. The dividend of $2.58/share/yr. recently yielded 2.14% and appears secure.

Fiscal year: December. Earnings per share: 2019 est./$5.90…2018/$5.55…2017/$4.28.

Michael Scanlon is senior managing director, investments, Manulife Asset Management, and portfolio manager of the $1.9 billion John Hancock Balanced Fund (SVBAX), Boston.