5
Eli Lilly and Company (LLY)
- Equity
- US
- Healthcare
RISK
RETURN
Key risk factors
Negligible price volatility
Strong & resilient to price shocks
Good trading liquidity
Key return factors
Very strong margins and returns
Greatly overvalued vs peers
Decent dividends
Company profileEli 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.
Valuation: Greatly overvalued
Multiple
TTM
NTM
P/E
117.90
64.00
PEG
10.30
-
P/B
56.50
30.70
P/S
21.20
17.80
P/FCF
-200.90
139.40
EV/EBITDA
50.70
56.80
From both historical and forecast perspectives, the stock is considerably overpriced compared to similar stocks. In particular, the stock is overpriced on P/E, 'expensive' on EV/EBITDA, and overvalued on P/FCF.
Performance: Decent
Over the last six months, the stock performance has varied, with an increase following a drop. When compared to its international counterparts in the same sector and industry (as shown above), the stock has exceeded their performances, leading by 26ppts in total. There is a distinction between the stock's performance and that of its peers from the same country and industry. Over six months it exceeded the performance of this peer group by 16ppts and accelerated its growth by 5ppts in the recent month. Given the stock's valuation versus its peers, its total price movement is mildly favourable.
Analyst view: Neutral
The average target price is 837 and suggests 4% upside potential. Usually, this means a HOLD recommendation among investment firms. This neutral recommendation suggests no significant price movement, up or down, in the next 12 months. The most optimistic analyst has a target price of 1023.0. This translates into 27% upside potential in the best case. On the other hand, the most pessimistic analyst has a target price of 540.0. This is equivalent to 33% downside potential in the worst case.
Profitability: Very strong
RoE
Eli Lilly and Company reported a return on equity (RoE) of 52.1% in the last 12 months, down from 63.6% in FY22. The market consensus projects an RoE of 89.2% in FY24, again ahead of its peers.
RoA
Another important profitability metric, return on assets (RoA), amounted to 9.6% in the last 12 months, a decrease from 12.7% in FY22. The market analysts predict that RoA will be 17.1% in FY24, again stronger than its peers.
RoCE
In the last 12 months, the return on capital employed (RoCE) declined to 15.0%, below the peers. The consensus estimate for FY24 for RoCE is 41.9%, however, this time ahead of the peers.
Net margin
EBITDA margin
Historically, LLY has reported very strong net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 17.1%, down from 21.9% in FY22. The company has reported strong EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 43.2% in the last 12 months, up from 33.7% in FY22.
RoIC / WACC = 3.6(excellent value creation)
The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 3.6 in the past several years. This ratio implies a excellent shareholder value creation. Growth: Average
Revenue
EBITDA
EPS
Free cash flow
LLY reported revenue of USD 34 124mn in the last 12 months, up 20% from FY22. At the same time, the dynamics of cash flow, as measured by free cash flow (FCF), were drastically different. EPS fell 16% from FY22 to USD 5.70. Market expects EPS to reach USD 13.8 in FY24.Revenue growth has been moderate in the past several years (positive-to-neutral), while EBITDA has grown rapidly in recent years (positive). Net income has fallen rapidly in recent years (strongly negative). Free cash flow, on the contrary, has climbed rapidly in recent years thanks to good cash generation, in contrast to the EBITDA dynamics. We emphasize the highly volatile dynamics of FCF. On the positive side, revenue dynamics is very stable.
Dividends: Decent
Dividend paid
Dividend yield
The company has a track record of regular dividend payments. It has paid dividends in each of the past ten years. Dividend per share (DPS) has grown yearly, and there is an evident trend. In the past 12 months, the dividend yield has been low and below its peers. On average, the company pays dividends quarterly, which may appeal to investors valuing a regular income stream.
Default risk: Limited
The risk of default is minimal. We note robust profitability, solid return on capital, strong debt servicing capacity, and adequate interest coverage, among the positive credit factors. Among the negative credit factors, we point to slow historical revenue growth, excessive margin volatility, poor working capital management, and an unfavourable capital structure.
Volatility: Negligible
In normal market circumstances, LLY is not volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will stay within a narrow range. The stock's losses on its worst days (less than 1-5% of the time) will range from very low to negligible. We would also like to highlight the negligible intraday volatility of the instrument.
Stress-test: Negligible
In highly turbulent market conditions, LLY is not volatile. In other words, the stock will fall far less than the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be very low.
Selling difficulty: Low
LLY boasts high trading liquidity. The average private investor can sell his common position in the stock immediately. Liquidity is usually very stable and is somewhat unfavourable on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions.
Country risk: Very low
The institutional, legal, and compliance risks associated with the company's country are minimal. In combination with stringent business standards, shareholder rights are very highly protected.
Other risks: Negligible
No other major risks have been identified.