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Comparing Eli Lilly’s Post-4Q17 Valuation

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Eli Lilly’s valuation

In 4Q17, Eli Lilly and Company (LLY) surpassed Wall Street analysts’ EPS (earnings per share) and revenue estimates of $1.07 and ~$5.9 billion, respectively, reporting EPS of $1.14 on revenue of ~$6.2 billion.

The above chart shows Eli Lilly’s EPS and revenue since 1Q16. In fiscal 2017, Eli Lilly reported EPS of $4.28 on revenue of ~$22.9 billion. Let’s look at its valuation metrics.

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Forward price-to-earnings multiple

PE (price-to-earnings) multiples represent what one share can buy for an equity investor. On February 20, 2018, Eli Lilly was trading at a forward PE multiple of ~15.9x, compared with the industry average of ~15.6x. Peers Allergan (AGN) and Merck (MRK), were trading at lower multiples, of 10.4x, and 13.3x, respectively, while Bristol-Myers Squibb (BMY) was trading at a higher multiple of 20.5x.

Enterprise value multiple

On a capital-structure-neutral and excess-cash-adjusted basis, Lilly was trading at an EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of ~12.8x on February 20, higher than the industry average of ~12.3x. Allergan and Merck were trading at lower multiples, of 11.1x, and 10.6x, respectively, while Bristol-Myers Squibb was trading at a higher multiple of 17.6x. Notably, the SPDR S&P Pharmaceuticals ETF (XPH) holds 3.9% of its total investments in Eli Lilly, 4.2% in Allergan, 4.4% in Merck, and 4.7% in Bristol-Myers Squibb.

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