Amidst fluctuating markets, Eli Lilly and Co (LLY, Financial) presents an intriguing case for investors, with a recent daily loss of -1.18% and a modest 3-month gain of 5.2%. With an Earnings Per Share (EPS) of 5.42, questions arise about its valuation status: Is Eli Lilly and Co significantly overvalued? This article will delve into a valuation analysis to address this pressing question for value investors.
Company Introduction
Eli Lilly and Co is a prominent drug firm with specialized focus areas including neuroscience, cardiometabolic, cancer, and immunology. Boasting key products such as Verzenio, Mounjaro, and Taltz, Eli Lilly and Co has established a solid footprint in the pharmaceutical industry. However, with a current stock price of $584.04 and a GF Value of $348.05, indicating the stock's estimated fair value, a significant discrepancy is evident. This gap sets the stage for a deeper exploration into the company's intrinsic value, juxtaposing its financial performance with the estimated fair value.
Summarize GF Value
The GF Value is a unique measure of intrinsic value, incorporating historical trading multiples, a GuruFocus adjustment factor based on past returns and growth, and future business performance estimates. When a stock trades significantly above this line, it may be overvalued, suggesting potential poor future returns. Conversely, a price well below the GF Value could indicate an undervalued stock with prospects for higher returns. Currently, Eli Lilly and Co's stock price exceeds the GF Value Line, suggesting it may be significantly overvalued.
Given this valuation, the long-term return of Eli Lilly and Co's stock could potentially trail behind its business growth rate. Investors should exercise caution and consider the potential for diminished returns.
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Financial Strength
Investing in companies with robust financial strength is crucial to mitigate the risk of capital loss. A closer look at Eli Lilly and Co's financials reveals a cash-to-debt ratio of 0.12, which is lower than 82.94% of its industry peers. Despite this, the company's overall financial strength is rated a fair score of 6 out of 10 by GuruFocus.
Profitability and Growth
Profitability is often a harbinger of a company's investment safety. Eli Lilly and Co has shown consistent profitability, with a remarkable operating margin of 31.07%, outperforming 95.38% of competitors in the Drug Manufacturers industry. This strong profitability is reflected in a high GuruFocus rank of 9 out of 10.
Regarding growth, Eli Lilly and Co's 3-year average annual revenue growth rate stands at 9.8%, surpassing 62.57% of its industry counterparts. However, its 3-year average EBITDA growth rate is 9.1%, which is not as competitive, ranking lower than 51.42% of the industry.
ROIC vs. WACC
Evaluating a company's value creation can be done by comparing its Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC). Eli Lilly and Co's ROIC of 21.81 is significantly higher than its WACC of 7.05, indicating efficient value generation for shareholders.
Conclusion
In summary, Eli Lilly and Co (LLY, Financial) appears to be significantly overvalued based on its current market price. The company exhibits fair financial health and robust profitability, though its growth performance is somewhat middling within the Drug Manufacturers industry. For a more detailed financial perspective, investors can review Eli Lilly and Co's 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.
