Eli Lilly and Co (LLY, Financial) recently experienced a daily loss of 2.34%, contributing to a 3-month decline of 1.61%. Despite these fluctuations, the company maintains an Earnings Per Share (EPS) of 5.42. Investors are now faced with a critical question: Is Eli Lilly and Co significantly overvalued? To provide an answer, we delve into a comprehensive valuation analysis, inviting readers to explore the financial intricacies of this intriguing pharmaceutical giant.
Company Profile: Eli Lilly and Co (LLY, Financial)
Eli Lilly and Co (LLY) is a renowned drug firm specializing in neuroscience, cardiometabolic, cancer, and immunology treatments. With flagship products like Verzenio, Mounjaro, and Taltz, Eli Lilly and Co (LLY) has established a strong market presence. The company's current stock price stands at $584.04, with a hefty market cap of $554.40 billion. However, when juxtaposed against the GF Value, an estimated fair value of $350.04, a stark contrast emerges. This discrepancy sets the stage for an in-depth evaluation of Eli Lilly and Co's intrinsic worth.
Understanding the GF Value
The GF Value is a unique metric that determines the intrinsic value of a stock using historical trading multiples, an adjustment factor based on past performance and growth, and future business performance projections. If a stock's price gravitates significantly above the GF Value Line, it's deemed overvalued, signaling a potential decline in future returns. Conversely, a price below the GF Value Line suggests undervaluation and the likelihood of higher future returns. Currently, Eli Lilly and Co (LLY, Financial)'s stock price far exceeds the GF Value Line, indicating that it is significantly overvalued and may warrant caution from long-term investors.
Given this valuation, Eli Lilly and Co's long-term stock return could potentially lag behind its future business growth, prompting investors to consider the risk of lower returns.
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Financial Strength and Stability
Investors must scrutinize a company's financial strength before committing capital. Companies with robust financial health present lower risks of permanent loss. Eli Lilly and Co's cash-to-debt ratio of 0.12 is less than ideal, ranking lower than 83.05% of its industry peers. Despite this, the company's overall financial strength score is a fair 6 out of 10.
Profitability and Growth Prospects
A history of profitability is a reassuring sign for investors, and Eli Lilly and Co has been profitable for 9 out of the past 10 years. The company's impressive operating margin of 31.07% outperforms 95.37% of competitors in the Drug Manufacturers industry, earning it a strong profitability rank of 8 out of 10. However, growth is equally critical. Eli Lilly and Co's 3-year average annual revenue growth of 9.8% is commendable, although its EBITDA growth rate suggests room for improvement when compared to industry counterparts.
ROIC vs. WACC: A Profitability Indicator
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) reveals the efficiency of its cash flow relative to invested capital. Eli Lilly and Co boasts a ROIC of 21.81, substantially higher than its WACC of 6.72, indicating a profitable allocation of capital.
Conclusion: Eli Lilly and Co's Valuation Outlook
In conclusion, the stock of Eli Lilly and Co (LLY, Financial) appears to be significantly overvalued when considering its GF Value. While the company's financial health is fair and its profitability robust, its growth rate may not justify the current stock price. For a deeper understanding of Eli Lilly and Co's financials, investors are encouraged to review the company'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.
