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 is 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 cardiometabolic; and Taltz and Olumiant for immunology.
Recent Performance
Over the past twelve months the share price is up 61.77%.
Source: Google Finance
Inputs
- Discount Rate: 5%
- Terminal Growth Rate: 4%
- WACC: 5%
Forecasted Free Cash Flows (FCFs)
| Year | FCF (billions) | PV(billions) |
| 2024 | 4.54 | 4.32 |
| 2025 | 5.06 | 4.59 |
| 2026 | 5.64 | 4.87 |
| 2027 | 6.28 | 5.17 |
| 2028 | 7 | 5.48 |
Terminal Value
Terminal Value = FCF * (1 + g) / (r – g) = 728.00 billion
Present Value of Terminal Value
PV of Terminal Value = Terminal Value / (1 + WACC)^5 = 570.41 billion
Present Value of Free Cash Flows
Present Value of FCFs = ∑ (FCF / (1 + r)^n) = 24.44 billion
Enterprise Value
Enterprise Value = Present Value of FCFs + Present Value of Terminal Value = 594.84 billion
Net Debt
Net Debt = Total Debt – Total Cash = 25.53 billion
Equity Value
Equity Value = Enterprise Value – Net Debt = 569.31 billion
Per-Share DCF Value
Per-Share DCF Value = Enterprise Value / Number of Shares Outstanding = $632.57
Conclusion
| DCF Value | Current Price | Margin of Safety |
|---|---|---|
| $632.57 | $921.49 |
-45.67% |
Based on the DCF valuation, the stock is overvalued. The DCF value of $632.57 share is lower than the current market price of $921.49. The Margin of Safety is -45.67%.
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