With a daily gain of 1.9% and a 3-month gain of 5.91%, Eli Lilly and Co (LLY, Financial) presents an interesting case for investors. The company's Earnings Per Share (EPS) stands at 5.42, reflecting its profitability. However, the critical question remains: is Eli Lilly and Co (LLY) significantly overvalued? To address this, we delve into a comprehensive valuation analysis, inviting readers to explore the details that follow.
Company Introduction
Eli Lilly and Co (LLY, Financial) is a prominent drug firm specializing in neuroscience, cardiometabolic diseases, cancer, and immunology. With key products like Verzenio, Mounjaro, and Taltz, the company has established a strong presence in the pharmaceutical industry. When examining Eli Lilly and Co's stock price of $581.51 against the GF Value of $353.22, a measure of fair value, we uncover a significant disparity. This discrepancy sets the stage for an in-depth evaluation of the company's true market value.
Summarize GF Value
The GF Value is a unique intrinsic value measure, incorporating historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. If Eli Lilly and Co's stock price is considerably above this line, it suggests overvaluation and potentially lower future returns. Conversely, a price below indicates undervaluation and the possibility of higher returns. Currently, with a price of $581.51, Eli Lilly and Co is deemed significantly overvalued by GuruFocus' standards.
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Financial Strength
Investing in companies with robust financial strength mitigates the risk of capital loss. Eli Lilly and Co's cash-to-debt ratio of 0.12 ranks poorly within the industry, suggesting caution. The company's financial strength, with a GuruFocus rating of 6 out of 10, is considered fair, yet it's crucial to monitor its debt levels and cash reserves over time.
Profitability and Growth
Profitable companies are generally safer investments, and Eli Lilly and Co's consistent profitability over the past decade underscores this. With an impressive operating margin of 31.07%, Eli Lilly and Co outperforms most competitors in the Drug Manufacturers industry. Its strong profitability rank of 9 out of 10 reflects this advantage.
However, growth remains a pivotal factor in valuation. Eli Lilly and Co's 3-year average annual revenue growth of 9.8% is commendable, though its EBITDA growth rate suggests there is room for improvement. Balancing profitability and growth is key to the company's long-term success.
ROIC vs WACC
Comparing Return on Invested Capital (ROIC) to the Weighted Average Cost of Capital (WACC) provides insight into value creation. Eli Lilly and Co's ROIC of 21.81 significantly surpasses its WACC of 6.37, indicating effective capital allocation and shareholder value generation.
Conclusion
In conclusion, despite its strong profitability and solid market position, Eli Lilly and Co (LLY, Financial) appears significantly overvalued when considering the GF Value. Investors should weigh the company's fair financial condition against its growth prospects and profitability. For a more detailed financial overview, Eli Lilly and Co's 30-Year Financials can provide further insights.
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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.
