The Eli Lilly and Co (LLY) DCF Valuation: Is The Stock Undervalued?
Thursday, December 28, 2023 · Johnny Hopkins
As part of a new series, each week we typically conduct a DCF on one of the companies in our screens. This week we thought we’d take a look at one of the stocks that are not currently in our screens, Eli Lilly and Co (LLY).
Profile
Eli Lilly is a drug firm with a focus on neuroscience, cardiometabolic, cancer, and immunology. Lilly’s key products include Verzenio for cancer; Mounjaro, Zepbound, Jardiance, Trulicity, Humalog, and Humulin for diabetes; and Taltz and Olumiant for immunology.
Recent Performance
Over the past twelve months the share price is up 59.34%.
Inputs
- Discount Rate: 5.3%
- Terminal Growth Rate: 2%
- WACC: 5.3%
Forecasted Free Cash Flows (FCFs)
| Year | FCF (billions) | PV(billions) |
| 2024 | 5.31 | 5.04 |
| 2025 | 5.71 | 5.15 |
| 2026 | 6.15 | 5.27 |
| 2027 | 6.6 | 5.37 |
| 2028 | 7.1 | 5.48 |
Terminal Value
Terminal Value = FCF * (1 + g) / (r – g) = 219.45 billion
Present Value of Terminal Value
PV of Terminal Value = Terminal Value / (1 + WACC)^5 = 169.51 billion
Present Value of Free Cash Flows
Present Value of FCFs = ∑ (FCF / (1 + r)^n) = 26.31 billion
Enterprise Value
Enterprise Value = Present Value of FCFs + Present Value of Terminal Value = 195.83 billion
Net Debt
Net Debt = Total Debt – Total Cash = 8.58 billion
Equity Value
Equity Value = Enterprise Value – Net Debt = 187.25 billion
Per-Share DCF Value
Per-Share DCF Value = Enterprise Value / Number of Shares Outstanding = $197.31
Conclusion
| DCF Value | Current Price | Margin of Safety |
|---|---|---|
| $197.31 | $581 | -194.46% |
Based on the DCF valuation, the stock is overvalued. The DCF value of $197.31 per share is lower than the current market price of $581. The Margin of Safety is -194.46%.
It is important to note that this valuation is based on a number of assumptions, and these assumptions could change in the future. This valuation is meant to be a back-of-the-envelope analyse that could be used as a starting point in a much more thorough valuation process. As a result, it is important to do your own research before making any investment decision.