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Is Eli Lilly & Co.’s Valuation Higher Than Its Peers?

Mike Benson - Author

May 3 2017, Updated 7:35 a.m. ET

Eli Lilly & Co.’s valuation multiples

Headquartered in Indianapolis, Indiana, Eli Lilly & Co. (LLY) has two main businesses: Human Pharmaceuticals and Animal Health.

From an investor’s point of view, the two best valuation multiples used for valuing companies like Eli Lilly are forward PE (price-to-earnings) and EV-to-EBITDA[1. enterprise value to earnings before interest, tax, depreciation, and amortization] multiples, considering the relatively stable and visible nature of their earnings.

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Forward PE

PE multiples represent what one share can buy for an equity investor. On April 26, 2017, the company was trading at a forward PE multiple of ~19.3x, compared to the industry average of ~15.9x.

Over the last year, Eli Lilly’s (LLY) forward PE has traded in the range of 18.9x–25.5x. Among its competitors, Pfizer (PFE), Johnson & Johnson (JNJ), and Merck & Co. (MRK) have forward PE multiples of 13.0x, 16.9x, and 16.0x, respectively.

Based on the last five-year multiple range, Eli Lilly’s current valuation is neither high nor low, and its PE multiple has ranged from ~7.6x to ~26.5x.

Forward EV-to-EBITDA

On a capital structure–neutral and excess cash-adjusted basis, Eli Lilly currently trades at ~13.9x, which is higher than the industry’s average of ~10.8x. Among its competitors, Pfizer (PFE), Johnson & Johnson (JNJ), and Merck & Co. (MRK) have forward EV-to-EBITDA multiples of 10.1x, 11.5x, and 9.5x, respectively.

Analyst recommendations

Eli Lilly’s stock price has increased ~6.1% over the last 12 months. Analysts estimate that the stock has the potential to return ~10.1% over the next 12 months. Analysts’ recommendations show a 12-month target price of $89.10 per share compared to its price of $80.96 per share on April 27, 2016. The consensus rating for Eli Lilly stock is ~2.0, which shows a moderate buy for long-term investors.

For broad-based exposure to the company, investors can consider the Fidelity MSCI Healthcare ETF (FHLC), which holds ~2.2% of its total assets in Eli Lilly.


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