The stock of Eli Lilly and Co (NYSE:LLY, 30-year Financials) is estimated to be modestly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $186.82 per share and the market cap of $179.2 billion, Eli Lilly and Co stock is estimated to be modestly overvalued. GF Value for Eli Lilly and Co is shown in the chart below.
Because Eli Lilly and Co is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 12.3% over the past three years and is estimated to grow 6.85% annually over the next three to five years.
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It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Eli Lilly and Co has a cash-to-debt ratio of 0.22, which is worse than 77% of the companies in Drug Manufacturers industry. The overall financial strength of Eli Lilly and Co is 5 out of 10, which indicates that the financial strength of Eli Lilly and Co is fair. This is the debt and cash of Eli Lilly and Co over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Eli Lilly and Co has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $24.5 billion and earnings of $6.693 a share. Its operating margin is 27.91%, which ranks better than 92% of the companies in Drug Manufacturers industry. Overall, the profitability of Eli Lilly and Co is ranked 8 out of 10, which indicates strong profitability. This is the revenue and net income of Eli Lilly and Co over the past years:
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Eli Lilly and Co is 12.3%, which ranks better than 68% of the companies in Drug Manufacturers industry. The 3-year average EBITDA growth rate is 35.9%, which ranks better than 87% of the companies in Drug Manufacturers industry.
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Eli Lilly and Co's ROIC was 18.21, while its WACC came in at 3.24. The historical ROIC vs WACC comparison of Eli Lilly and Co is shown below:
To conclude, the stock of Eli Lilly and Co (NYSE:LLY, 30-year Financials) is believed to be modestly overvalued. The company's financial condition is fair and its profitability is strong. Its growth ranks better than 87% of the companies in Drug Manufacturers industry. To learn more about Eli Lilly and Co stock, you can check out its 30-year Financials here.
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