Investing.com -- HSBC has downgraded Eli Lilly to Reduce, arguing in a note on Tuesday that expectations for the fast-growing obesity drug market have become overly optimistic and that the company’s shares now look “priced to perfection.”

The call, led by HSBC analyst Rajesh Kumar, saw the bank cut LLY’s price target to $850 from $1,070.

HSBC believes the broader Healthcare sector is positioned to outperform in the coming quarter, but warned that “elevated multiples and crowded positioning in the sector remains a key risk.”

Within that backdrop, the bank now sees the risk-reward balance for Lilly as unfavourable because “obesity TAM expectations seem inflated.”

The downgrade hinges on three concerns. First, HSBC said it thinks the market’s total addressable market expectations for obesity drugs “remains elevated (>USD150bn),” while its own estimate sits at $80-120bn by 2032.

The bank also expects price competition to intensify, noting that upcoming price cuts in 2026 will challenge assumptions embedded in Lilly’s guidance.

Second, HSBC warned that expectations for Lilly’s oral drug launch are too high. The analysts wrote that “the compliance and persistence of these drugs might disappoint,” adding that consensus forecasts for 2026 sales appear “anchored to USD1.5bn inventory build by Lilly.”

Finally, HSBC believes the divergence between Lilly’s guidance and that of Novo Nordisk’s reflects heavy reliance on the cash-pay channel, which “might be more sensitive to economic cycle” and to AI-linked labour market disruptions.