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Eli Lilly and Company Has a High Forward EV/EBITDA Multiple

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Eli Lilly and Company and its peers

Eli Lilly and Company (LLY), also referred to as “Lilly,” is a US pharmaceutical company. It has many close competitors including Abbvie (ABBV), Merck and Company (MRK), Novartis AG (NVS), Sanofi (SNY), Pfizer (PFE), and AstraZeneca (AZN).

Pharmaceutical and healthcare companies are capital-intensive companies. They have high debt on their balance sheets due to heavy setup costs. The EV/EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) is often used to value capital-intensive companies. The above chart compares the forward EV/EBIDTA multiple trend for five years for Lilly and the industry.

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EV/EBIDTA multiple

The forward EV/EBIDTA multiple for Lilly is ~17.5x. It’s much higher than the industry average of ~14.5x. Other companies in pharmaceuticals include Merck and Company with an enterprise multiple of ~11.7x, Bristol-Myers Squibb (BMY) with ~25.2x, Pfizer with ~10.5x, and Abbvie with ~11.8x.

PE multiple

The PE (price-to-earnings) multiple is one of the simplest multiples used for valuations. The target PE ratio for Lilly is ~25.4x for 2015, while it’s ~20.2x for the industry.

ETFs like the Health Care Select Sector SPDR ETF (XLV) and the iShares US Healthcare ETF (IYH) are focused on pharmaceutical companies.

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