As of November 06, 2023, Eli Lilly and Co (LLY, Financial) reported a daily gain of 4.82% and a 3-month gain of 32.83%. Its Earnings Per Share (EPS) stands at 7.09. But is this stock significantly overvalued? This article aims to answer this question by providing a detailed valuation analysis of Eli Lilly and Co (LLY). Let's dive in.
Company Snapshot
Eli Lilly and Co is a renowned drug firm with a focus on neuroscience, cardiometabolic, cancer, and immunology. Its key products include Verzenio for cancer; Mounjaro, Jardiance, Trulicity, Humalog, and Humulin for diabetes; and Taltz and Olumiant for immunology. With a market cap of $565 billion and a stock price of $595.19 per share, the company's valuation appears to be significantly overvalued based on the GuruFocus Value, which stands at $341.62.
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, computed based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. If the stock price is significantly above the GF Value Line, it is considered overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. In the case of Eli Lilly and Co, the stock appears to be significantly overvalued.
Financial Strength
Before investing in a company, it's crucial to assess its financial strength. Eli Lilly and Co's cash-to-debt ratio stands at 0.12, which is lower than 81.71% of 1039 companies in the Drug Manufacturers industry. This indicates that the company's financial strength is fair, with a rating of 6 out of 10.
Profitability and Growth
Investing in profitable companies poses less risk, especially if they've shown consistent profitability over the long term. Eli Lilly and Co's profitability ranks at 8 out of 10, indicating strong profitability. The company's 3-year average annual revenue growth rate is 9.8%, which is better than 62.55% of 916 companies in the Drug Manufacturers industry. However, its 3-year average EBITDA growth rate ranks worse than 50.97% of 877 companies in the same industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can help determine its profitability. Eli Lilly and Co's ROIC is 21.45, and its WACC is 7.28, implying that the company is creating value for shareholders.
Conclusion
In summary, Eli Lilly and Co (LLY, Financial) appears to be significantly overvalued. Despite its fair financial condition and strong profitability, its growth ranks worse than 50.97% of 877 companies in the Drug Manufacturers industry. To learn more about Eli Lilly and Co stock, you can check out its 30-Year Financials here.
To find out the high quality companies that may deliver above-average returns, please check out GuruFocus High Quality Low Capex Screener.
This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
