Amidst a daily gain of 2.96% and a three-month gain of 8.32%, Eli Lilly and Co (LLY, Financial) presents a fascinating case for valuation analysis. With an Earnings Per Share (EPS) of 6.68, the central question arises: is the stock significantly overvalued? This article delves into the intrinsic value of Eli Lilly and Co, leveraging the unique GF Value to determine if its current market price justifies the underlying financial metrics and future growth prospects.
Company Overview
Eli Lilly and Co, a leading drug firm, specializes in several critical therapeutic areas including neuroscience, cardiometabolic disorders, cancer, and immunology. Notable products such as Verzenio for cancer and Trulicity for diabetes underscore its diversified product portfolio. Despite its robust product lineup, a stark contrast appears when comparing its current stock price of $806.4 to the GF Value of $430.04, suggesting a potential overvaluation. This discrepancy sets the stage for a deeper investigation into its valuation.
Understanding GF Value
The GF Value is a proprietary measure calculated using historical trading multiples, an adjustment factor from GuruFocus based on past performance, and future business performance estimates. For Eli Lilly and Co, the GF Value suggests that the stock is significantly overvalued at its current price. This assessment is based on a rigorous analysis of the company's financial history and growth prospects, indicating that the long-term return on this investment might be compromised due to the high entry price.
Financial Strength and Stability
Investors must consider a company's financial health before investing, and Eli Lilly and Co's financial strength is rated as fair, with a score of 6 out of 10. The company's cash-to-debt ratio of 0.1, ranking lower than 84.43% of its peers, raises concerns about its debt management. However, the company maintains a robust interest coverage level.
Profitability and Growth Metrics
Eli Lilly and Co has demonstrated strong profitability with an operating margin of 33.51%, significantly higher than most of its industry peers. Its consistent profitability over the past decade underscores its efficiency in managing operations amidst various market conditions. However, its growth metrics present a mixed view, with a 3-year average revenue growth rate of 12%, juxtaposed against a slight decline in EBITDA growth rate over the same period.
Investment Considerations: ROIC vs. WACC
A critical comparison for investors is between the company's Return on Invested Capital (ROIC) and its Weighted Average Cost of Capital (WACC). Eli Lilly and Co's ROIC stands at 22.81, substantially surpassing its WACC of 7.82, indicating effective capital management and value creation for shareholders.
Conclusion
While Eli Lilly and Co (LLY, Financial) showcases strong financial health and profitability, its current market pricing significantly exceeds its GF Value, suggesting it is overvalued. Potential investors should weigh the high market entry cost against the robust fundamentals and consider if the premium price aligns with their investment strategy. For further insights and a detailed financial analysis, visit Eli Lilly and Co's 30-Year Financials.
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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.
