Eli Lilly’s Valuation after 2Q17 Earnings Release
Eli Lilly’s valuation
In the graph below, you can see analysts’ estimates for EPS (earnings per share) with actual EPS for Ely Lilly and Company (LLY). For 2Q17, the company surpassed analysts’ EPS estimate of $1.05 and reported EPS of $1.11. Analysts are estimating EPS of $1.03 for 3Q17. Let’s look now at Eli Lilly’s valuation multiples.
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PE (price-to-earnings) multiples represent what one share can buy for an equity investor. On July 27, 2017, the company was trading at a forward PE multiple of ~18.9x compared to the industry average of ~16.9x. Competitors such as Bristol-Myers Squibb (BMY), Johnson & Johnson (JNJ), and Pfizer (PFE) have forward PE multiples of 18.1x, 17.4x, and 12.3x, respectively.
On a capital-structure-neutral and excess-cash-adjusted basis, Eli Lilly currently trades at ~13.9x, which is higher than the industry average of ~12.4x. Competitors such as Bristol-Myers Squibb (BMY), Johnson & Johnson (JNJ), and Pfizer (PFE) have forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiples of 15.4x, 12.3x, and 10.0x, respectively.
LLY stock has risen ~11.3% year-to-date. Analysts estimate that the stock has the potential to return ~10.0% over the next 12 months. Analysts’ recommendations show a 12-month target price of $90.05 per share compared to $81.84 on July 26, 2017. The current recommendation for the stock is 2.2, which shows a “moderate buy” for long-term investors.
To divest the company-specific risks, you can consider the iShares Global Healthcare (IXJ), which holds 1.9% of its total assets in Eli Lilly. IXJ also holds 7.7% of its total assets in Johnson & Johnson (JNJ), 4.9% in Pfizer (PFE), and 2.1% in Bristol-Myers Squibb (BMY).