Eli Lilly and Company (LLY) Valuation Report

Market Cap
$720B

Enterprise Value
$742B

Price
$757.49 -0.99%

Dividend Yield
0.7%

Adjusted Yield
0.6%

TTM Growth Margin Ratio Yield
Revenue $34B 19.6% 21.7x
Gross $27B 24.0% 79.6% 27.3x
EBITDA $14B 46.0% 41.1% 52.9x
EBIT $7.1B -10.8% 20.9% 103.8x 1.0%
Profit $5.2B -16.1% 15.4% 137.3x 0.7%
FCFF -$6.9B -218.8% -20.1% -108.1x -0.9%
FCFE $2.2B -49.8% 15.1% 333.6x 0.3%
Cost of Equity = 7.7% | Cost of Capital = 7.6%Currency: USD | Updated:
Sector: Healthcare | Industry: Drug Manufacturers—General | Read more...

Eli Lilly and Company discovers, develops, and markets human pharmaceuticals worldwide.
It offers Basaglar, Humalog, Humalog Mix 75/25, Humalog U-100, Humalog U-200, Humalog Mix 50/50, insulin lispro, insulin lispro protamine, insulin lispro mix 75/25, Humulin, Humulin 70/30, Humulin N, Humulin R, and Humulin U-500 for diabetes; and Jardiance, Trajenta, and Trulicity for type 2 diabetes.
The company provides Alimta for non-small cell lung cancer (NSCLC) and malignant pleural mesothelioma; Cyramza for metastatic gastric cancer, gastro-esophageal junction adenocarcinoma, metastatic NSCLC, metastatic colorectal cancer, and hepatocellular carcinoma; Erbitux for colorectal cancers, and various head and neck cancers; Retevmo for metastatic NSCLC, medullary thyroid cancer, and thyroid cancer; Tyvyt for relapsed or refractory classic Hodgkin's lymph and non-squamous NSCLC; and Verzenio for HR+, HER2- metastatic breast cancer, node positive, and early breast cancer.
It offers Olumiant for rheumatoid arthritis; and Taltz for plaque psoriasis, psoriatic arthritis, ankylosing spondylitis, and non-radiographic axial spondylarthritis.
The company offers Cymbalta for depressive disorder, diabetic peripheral neuropathic pain, generalized anxiety disorder, fibromyalgia, and chronic musculoskeletal pain; Emgality for migraine prevention and episodic cluster headache; and Zyprexa for schizophrenia, bipolar I disorder, and bipolar maintenance.
Its Bamlanivimab and etesevimab, and Bebtelovimab for COVID-19; Cialis for erectile dysfunction and benign prostatic hyperplasia; and Forteo for osteoporosis.
The company has collaborations with Incyte Corporation; Boehringer Ingelheim Pharmaceuticals, Inc.; AbCellera Biologics Inc.; Junshi Biosciences; Regor Therapeutics Group; Lycia Therapeutics, Inc.; Kumquat Biosciences Inc.; Entos Pharmaceuticals Inc.; and Foghorn Therapeutics Inc.
Eli Lilly and Company was founded in 1876 and is headquartered in Indianapolis, Indiana..

Full-time employees: 43,000 | HQ: Indianapolis
Website: https://www.lilly.com

Valuation

Input

Revenue Growth

EBIT Margins

Reinvstment Efficiency

Cost of Capital

Tax

LLY Valuation Output

Terminal value

$169B

+ PV Terminal Value

$81B

+ PV FCFF

$32B

= Sum of PV

$113B

+ Cash

$2.9B

- Debt

$25B

= Intrinsic Value

$91B

Value Per Share

$101

Overvalued by 87% vs its $757 Price

1-Year Price Target

$110 (-86%)

10-Year Fundamental Projections for Eli Lilly and Company (LLY)
YearGrowthSalesEBIT %EBITTaxNOPATReinvestmentROICFCFFWACCPV FCFF
TTM 8.6% $34B 20.9% $7.1B 18% $5.8B $12B 18% -$6.9B 7.6% --
2025 8.6% $37B 20.9% $7.7B 18% $6.4B $2.9B 18% $3.4B 7.6% $3.2B
2026 8.6% $40B 20.9% $8.4B 18% $6.9B $3.2B 18% $3.7B 7.6% $3.2B
2027 8.6% $44B 20.9% $9.1B 18% $7.5B $3.5B 18% $4B 7.6% $3.2B
2028 8.6% $47B 20.9% $9.9B 18% $8.1B $3.8B 17% $4.4B 7.6% $3.3B
2029 8.6% $52B 20.9% $11B 18% $8.8B $4.1B 17% $4.8B 7.6% $3.3B
2030 7.7% $56B 20.9% $12B 19% $9.4B $5B 17% $4.4B 7.6% $2.8B
2031 6.9% $59B 20.9% $12B 20% $9.9B $4.8B 16% $5.1B 7.6% $3.1B
2032 6.0% $63B 20.9% $13B 22% $10B $4.5B 16% $5.9B 7.6% $3.3B
2033 5.1% $66B 20.9% $14B 23% $11B $4B 16% $6.6B 7.6% $3.4B
2034 4.3% $69B 20.9% $14B 24% $11B $3.5B 15% $7.4B 7.6% $3.6B
♾️ 4.3% $72B 20.9% $15B 25% $11B $5.7B 8.5% $5.6B 7.6% --
How is LLY's expected return calculated?

The expected return is a percent (%) estimate of how much a stock's value will change per year. It is used to calculate LLY's 1-year price target by multiplying the stock's present value with (1 + expected return). The expected return is calculated using a stock's risk (cost of capital), excess returns, and dividend yield.

Expected Return = (1 + Cost of Capital) * (Cost of Capital * (1 + ROIC - Cost of Capital - Dividend Yield))
8.9% = 107.6% * (7.6% * 109.4%)

We exclude dividend payments because they aren't reflected in a stock's price. Note that excess returns are highly dependant on our estimate of invested capital and its return. Neglecting to capitalize expense items such as operating leases, R&D, brand name marketing expenses, may inflate the excess return estimate.

The present value of (LLY) is negative. Use our 2-stage model to value a company that is expected to produce free cash flows in the future.

Growth

In the 12 months ending Q4'23 Eli Lilly and Company (LLY) grew revenues by 19.6%, from $29B to $34B - indicating an acceleration of revenue growth. LLY has a 5-year and 3-year revenue compound annual growth rate (CAGR) of 8.9% and 6.4% respectively.

Revenue Growth Estimates

Sustainable
8.7%
Fundamental
16.5%
Priced-in
8.3%

Bottom Line Growth Estimates

Fundamental Earnings Growth
0.5%
Fundamental EBIT Growth
17.2%
Priced-in FCFF Growth
8.6%

Looking at forward estimates, we can see that the market is pricing-in a 8.3% long-term revenue growth rate, while the financials indicate a future revenue growth rate between 8.7% and 16.5%.

Using the average of these 3 estimates we get a 11.2% long-term revenue growth for LLY.

What is LLY's sustainable revenue growth?

Similar to fixed vs variable costs, the sustainable growth rate shows how much we can expect the company to grow based on their reinvestment into the business, excluding variable demand and pricing. This rate may be helpful as a long-term baseline for the company.

(LLY) has invested $33B in total capital, consisting of $11B in book value of equity, plus $25B in total debt, less $2.9B in cash & equivalents.
By adding on the average reinvestment of $5.8B in the last 4 quarters on a TTM basis to the $33B capital base, and applying the current sales to capital ratio of 102.9%, we can expect the company to grow its revenue to $40B, implying growth of 17.4%. However, we assume at least one gap year for CapEx to transform into growth, so we divide the rate by 2 and get a 8.7% sustainable revenue growth.
Use your own judgement based on the type of business since it takes time for reinvestment to yield growth.

What are LLY's fundamental revenue & EBIT growth rates?

The fundamental growth rates analyze how much (LLY) is reinvesting into the business, adjusted for the quality of those reinvestments to come up with an estimate for a long-term future growth. Both fundamental and sustainable gorwt rate estimates attempt to use fundamentals in estimating growth.

Eli Lilly and Company (LLY) has reinvested an average of $5.8B on a rolling TTM basis, reflecting a reinvestment rate of 97.6%, calculated as:
Reinvestment / (EBIT - Tax) a.k.a. NOPAT.
By multiplying the reinvestment rate with the return on invested capital (ROIC) we get a long-term estimate for a growth in EBIT:
97.6% * 17.6% = 17.2% (Reinvestment rate * ROIC)

In order to convert this to a fundamental revenue growth rate, we analyze the relationship between EBIT growth and Revenue growth, and come up with a scaling factor of 96.4%. We then multiply the fundamental EBIT growth estimate by the revenue scaling factor and get an equivalent for a fundamental revenue growth rate of 16.5%.

What FCFF & revenue growth rates is the market pricing-in for LLY?

In order to justify the current $720B market capitalization given a 7.6% cost of capital, LLY needs to keep growing its un-levered free cash flows by 8.6% across many ( >10 ) years.

LLY's market implied FCFF growth rate of 8.6% =
1 + (Enterprise Value * Cost of Capital - FCFF) / (Enterprise Value + FCFF) =
1 + ($742B * 7.6% - -$6.9B) / ($742B + -$6.9B)

By analyzing the relationship between EBIT growth and revenue growth, we get a scaling factor of 96.4% that we apply to our implied FCFF growth in order to get the market implied revenue growth rate of 8.3%

Margins

Gross
79.6%
3.7% YoY
EBIT
20.9%
-25.4% YoY
Profit
15.4%
-29.8% YoY
FCFF
-20.1%
-199.4% YoY
Why is LLY scaling revenues by 14.7% relative to COGS?

LLY grew revenue by 19.6% in the last 12 months, and their COGS changed by 4.9% in the same period. This means that the company is scaling revenues 14.7% better than costs.

A company that has a scaling rate above 1:1 indicates efficient growth that may translate into added value in the bottom line. Conversely, if the rate is lower, e.g. 1:0.9, it shows that while the company managed to grow, their costs increased more than revenues.

Free Cash Flows

Reinvestment
-$12B
FCFF
-$6.9B
FCFE
$2.2B
Net CapEx
-$9B
Simple FCFF
-$3.2B
Change in WC
-$3.1B

Note: cash flows in the table and chart are presented as inflows and outflows, meaning that positive numbers indicate how much a company has taken in, and negatives show how much cash has flown out.

What is included in LLY's $11B capital expenditures?

In the last 12 months LLY invested $7.4B in plant property & equipment (PPE) CapEx. By adding the $3.1B in acquisition expenses, we get a total CapEx of $11B.

How much is LLY reinvesting into the business?

In the last 12 months ending Q4'23, LLY made capital expenditures of $11B. By netting out the depreciation of $1.5B, we get a NetCapEx of $9B, indicating that the company invested in future growth.

Finally, we add on the change in Working Capital of $3.1B, and get a Total Reinvestment of $12B.

By investing more than it depreciates, LLY is increasing its future growth assets.

How are LLY's -$6.9B free cash flows to the firm (FCFF) calculated? LLY's -$6,863,900,000.00 Free Cash Flows to the Firm (FCFF) =
$7,148,200,000.00 EBIT
- $1,234,050,000.00 Tax
- $7,392,100,000.00 Plant Property Equipment
- $3,149,500,000.00 Acquisitions
+ $1,527,300,000.00 Depreciation
+ -$3,055,000,000.00 Change in Working Capital
- $628,500,000.00 Stock Based Compensation

Free Cash Flows to the Firm are important because they indicate how much a company has left over for all (debt & equity) investors.
It is a measure of the true bottom line for investors, as opposed to earnings and the simplified version of free cash flows (Cash from operating activities - PPE).

In the last 12 months LLY had -$6.9B in free cash flows. This means that the company still needs to grow the business or cut costs.

How are LLY's $2.2B free cash flows to equity investors (FCFE) calculated? LLY's $2,157,700,000.00 Free Cash Flows to the Equity (FCFE) =
$5,240,300,000.00 Net Income
- $7,392,100,000.00 Plant Property Equipment
- $3,149,500,000.00 Acquisitions
+ $1,527,300,000.00 Depreciation
+ -$3,055,000,000.00 Change in Working Capital
+ $25,225,300,000.00 Total Debt today
- $16,238,600,000.00 Total Debt one year ago

Free Cash Flows to the Equity investors show how much the company has left over for shareholders.
It is an insightful metric when paired with FCFF for analyzing companies that have a lot of debt, as it can reveal the effect of interest rates on the value of equity.

When compared to FCFF, they should be roughly in-line, else we need to think about what causes the difference. In the last 12 months LLY had $2.2B in free cash flows to equity, indicating that the business can return capital in the form of dividends and buybacks.

Returns

ROE
48.2%
ROIC
17.6%
Sales to Cap
102.9%
How much excess returns (value) is LLY creating on average (25%), and how to calculate it?

ROE Excess Returns 40.6% = Return on Equity - Cost of Equity
ROC Excess Returns 10.0% = Return on Capital - Cost of Capital

Average Excess Returns = (ROE - Cost of Equity + ROIC - Cost of Capital) / 2

For every 1% of growth in its net and operating income, the value of LLY's stock changes by an average of 0.25%.

Excess returns are important because they help us estimate a company's target price.

If you are analyzing a company with a lot of R&D expenses, consider capitalizing them as an asset to get a better ROE & ROC estimate - You can use our automated spreadsheet.

Capital Structure

Equity
$11B
Debt
$25B
Cash
$2.9B
Interest Coverage
16.2x
Debt to EBITDA
1.80x
Debt to Capital
3.4%

Dividends & Buybacks

Adj. Yield
0.6%
Dividends + Buybacks - SBC
FCFE Payout
194.2%
% FCFE paid as Div + Net Buybacks
R-R Upside
-91.6%
FCFE yld. / Cost of Equity - 1

Eli Lilly and Company has transferred a total value of $4.2B to investors in the last 12 months. The required cash return (excluding expected growth) for LLY is $24B, or a 3.4% yield in the same period.

With an adjusted payout of 194.2%, LLY seems to be spending a potentially unsustainable amount of cash and may require financing if the financials don't improve.

SEC Filings

Examine the details and validate data:

Historical SEC Filings

Headlines