On November 15, 2023, Eli Lilly and Co (LLY, Financial) experienced a daily loss of 3.65%, despite a 3-month gain of 7.94%. With an Earnings Per Share (EPS) of 5.42, investors are keen to understand whether the current market valuation is justified. The burning question is: Is Eli Lilly and Co (LLY) significantly overvalued? This analysis aims to provide an answer by delving into the company's valuation.
Company Introduction
Eli Lilly and Co (LLY, Financial) is a prominent drug firm specializing in neuroscience, cardiometabolic, cancer, and immunology. The company's leading products, such as Verzenio, Mounjaro, and Taltz, contribute to a robust portfolio in these key areas. When comparing Eli Lilly and Co's current stock price of $588.54 to the GF Value of $344.85, a significant discrepancy is observed, suggesting a potential overvaluation. This initial comparison sets the stage for a deeper evaluation of the company's intrinsic value.
Summarize GF Value
The GF Value is a proprietary measure of intrinsic value, incorporating historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. Eli Lilly and Co (LLY, Financial)'s stock, with a market cap of $558.70 billion, is currently priced well above the GF Value Line, indicating a significant overvaluation. This discrepancy suggests that the long-term return on Eli Lilly and Co's stock may be considerably lower than its future business growth potential.
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Financial Strength
Investors must consider a company's financial strength to avoid the high risk of permanent capital loss. Eli Lilly and Co's cash-to-debt ratio of 0.12 ranks lower than 82.27% of its peers in the Drug Manufacturers industry, reflecting a fair financial strength rating of 6 out of 10. This financial positioning is crucial for investors assessing the risk associated with the company's debt levels.
Profitability and Growth
Profitability is a key indicator of a company's investment safety. Eli Lilly and Co has maintained profitability for 9 out of the past 10 years, achieving a remarkable operating margin of 31.07%. This level of profitability, which is higher than 95.45% of competitors in the industry, underscores the company's efficacy in generating profits from its operations. Additionally, Eli Lilly and Co's growth metrics, including a 3-year average revenue growth rate that surpasses 62.66% of industry counterparts, are essential in evaluating the company's value creation potential.
ROIC vs WACC
An analysis of Return on Invested Capital (ROIC) against the Weighted Average Cost of Capital (WACC) can provide insight into a company's profitability. Eli Lilly and Co's ROIC of 21.81% is significantly higher than its WACC of 7.16%, indicating that the company is effectively creating value for its shareholders.
Conclusion
In conclusion, the current market price of Eli Lilly and Co (LLY, Financial) suggests that the stock is significantly overvalued. The company exhibits fair financial health and robust profitability, with growth metrics that indicate potential for future value creation. For a detailed exploration of Eli Lilly and Co's financials, investors can review the 30-Year Financials here.
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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.
