Eli Lilly and Co (LLY, Financial) has recently seen a daily gain of 1.46%, with a three-month gain of 25.87%. The company's Earnings Per Share (EPS) (EPS) stands at 7.09. Despite this positive performance, the question arises: is the stock significantly overvalued? This article aims to provide a comprehensive analysis of Eli Lilly and Co's valuation, financial strength and growth prospects.
Company Overview
Eli Lilly and Co is a leading 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. The company's current stock price stands at $545.83, significantly higher than its GF Value of $302.93, indicating a potential overvaluation. With a market cap of $518.20 billion, Eli Lilly and Co is a significant player in the industry.
Understanding GF Value
The GF Value is a proprietary measure that provides an estimate of a stock's intrinsic value. It is calculated based on historical multiples that the stock has traded at, an adjustment factor based on the company's past returns and growth, and future estimates of business performance. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded.
According to the GF Value, Eli Lilly and Co appears to be significantly overvalued. This assessment is based on the company's historical multiples, past business growth, and analyst estimates of future business performance. If a stock's price is significantly above the GF Value Line, it suggests overvaluation and potential poor future returns. Conversely, if the stock's price is significantly below the GF Value Line, it may be undervalued and offer high future returns.
Given that Eli Lilly and Co is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.
Financial Strength
Assessing the financial strength of a company is crucial before investing. Companies with poor financial strength pose a higher risk of permanent loss. Key indicators of financial strength include the cash-to-debt ratio and interest coverage. Eli Lilly and Co's cash-to-debt ratio is 0.15, which is lower than 80.15% of companies in the Drug Manufacturers industry, indicating fair financial strength.
Profitability and Growth
Consistent profitability over the long term reduces investment risk. Higher profit margins usually indicate a better investment compared to a company with lower profit margins. Eli Lilly and Co has been profitable 9 over the past 10 years, with an operating margin of 28.12%, ranking better than 94.03% of companies in the Drug Manufacturers industry.
However, growth is a critical factor in company valuation. Eli Lilly and Co's 3-year average revenue growth rate is better than 62.69% of companies in the Drug Manufacturers industry. However, its 3-year average EBITDA growth rate is 9.1%, which ranks worse than 51.69% of companies in the Drug Manufacturers industry.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) is another way to assess profitability. When the ROIC is higher than the WACC, it suggests that the company is creating value for shareholders. For the past 12 months, Eli Lilly and Co's ROIC is 20.63, and its WACC is 7.21.
Conclusion
In conclusion, Eli Lilly and Co appears to be significantly overvalued. While the company's financial condition is fair and its profitability is strong, its growth ranks worse than 51.69% of companies in the Drug Manufacturers industry. For more detailed financial information on Eli Lilly and Co, check out its 30-Year Financials here.
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