Chances are, you have used an Eli Lilly product or you know someone who has. The company was the first pharmaceutical maker to mass produce Jonas Salk’s famous polio vaccine, and before that was known for introducing insulin into the commercial drug markets.

Historical success has made Lilly (LLY – Research Report) a major player in today’s pharmaceutical industry. As well as developing groundbreaking drugs for migraines and diabetes, LLY is also trialing Tanezumab for cancer and osteoarthritic pain alongside partner Pfizer (PFE). To put it bluntly, Eli Lilly and Company is a giant in the health care sector.

But how is Lilly as an investment? Stock markets are looking a bit shaky in recent weeks, and one common maneuver traders use to cover themselves in that situation is to shift money into defensive stocks. Looking at LLY’s market performance, we see it stood at $107 on October 1, just before a rash of upbeat reviews started arriving, and analyst optimism bumped it up to $115 a week later. The general dip that hit the equity markets that week pulled LLY back down, and it’s currently standing at $108.

The analyst consensus remains a ‘Strong Buy,’ with an upside potential of 18%. The average price target is $125.

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So why the rosy outlook? Top market analysts have just given Lilly five ‘Buy’ ratings in the last three weeks. 

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Earnings are Up, Costs are Down

The positive reviews started with John Boris (Track Record & Ratings) of SunTrust Robinson, who wrote on October 1 that Lilly is “positioned to drive earnings growth faster than sales, as gross margin and fixed cost leverage yield operating margin expansion.” In its most recent earnings report, for Q2, Lilly reported revenue of $6.36 billion, well above the estimates and up 9% from the same quarter last year. After adjustments, earnings per share also beat the estimates. Adjusted EPS was up almost 50% from last year’s Q2. Combined with a reported drop in expenses, strong year-over-year growth is a sign of underlying strength.

New Products are in the Pipeline

Like every successful drug company, Lilly always has new medications in various stages of development. What makes this moment special is the number of drugs in the Phase III – final trials – or Regulatory Review stages. With 18 products in these late stages of testing and approval – including three drugs with treatment applications for multiple conditions – Lilly has set itself up for further growth.

Seamus Fernandez (Track Record & Ratings) from Guggenheim boosted the share price target to $132, specifically citing Lilly’s development pipeline when he saw “limited downside from current levels with the potential for revaluation around the Phase 3 study readout for Tanezumab.” This trial was in osteoarthritis (OA) patients with inadequate pain relief or intolerance to standard treatments (NSAIDs, opioids, etc.).

“Pain management is about risk/benefit trade-off, and Tanezumab addresses a dire unmet need” chimes Alex Arfaei (Track Record & Ratings) of BMO Capital. He believes Tanezumab is highly underappreciated and recommends keeping an eye out for long-term data study results due 1H19. He has just upgraded Eli Lilly to Outperform from Market Perform with a $130 price target.

Also note positive just-released data for LLY’s diabetes drug Empagliflozin. Arfaei expects that Eli Lilly’s GLP-1 class of diabetes drugs will notch a compounded annual growth rate of 15% between this year and 2027, and that its Trulicity diabetes franchise can reach $11 billion in sales, which should help expand margins.

Those Price Targets Just Keep Rising

Three months ago, Lilly’s average target price was $105. Now, after strong earnings and good news from the trials, the stock appears poised to recover and the target is $20 higher.

The most recent analysts to comment, Louise Chen (Track Record & Ratings) of Cantor Fitzgerald, has just boosted her price target from $110 to $128. She attributes this to several factors: “The increase in the PT is driven by multiple expansion because of continued sales growth, margin expansion, and pipeline advancements.”

Chen cites sales growth – which powers earnings – pipeline advancements – and the drug trials that bring new products to market – as reasons for the increasing optimism in the price targets. Most excitingly, she also describes pain as a potential new ‘blockbuster vertical’ for the stock.

And Wrapping Up

Pharmaceutical companies sell a product with guaranteed demand, making them a natural fit for investors looking to protect a portfolio from market declines. Lilly has a solid foundation for a positive investor outlook, and the makings of a just such successful defensive stock. The company currently markets extensive medication lines for the treatment of diabetes, pain, cancer and mental illness, and has two arthritis drugs in late-phase trials.