DCF Studio

    LLY · NYQ · Healthcare

    Eli Lilly and Company

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 885.39

    Market price

    USD 1152.93

    Implied upside

    -23.2%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    AdjustedCapital expenditure runs at 16.9% of revenue against depreciation of 4.2%. A perpetuity has to be a steady state, so the terminal year uses maintenance capex at depreciation and then charges the reinvestment terminal growth requires (g/ROIC of NOPAT). The bridge is shown under Terminal Value.

    Current EV/EBITDA of 33.6x sits outside a defensible 3-20x band, so the exit multiple is capped at 20.0x. A multiple that far out usually means EBITDA is the wrong denominator for this business.

    Value Per Share

    Perpetuity growth
    USD 885.39-23.2%
    Exit multiple
    USD 1575.75+36.7%
    Market price
    USD 1152.93

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn6bn12bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 85.8bnUSD 113.0bnUSD 148.8bnUSD 196.0bnUSD 258.1bn+31.7%
    EBITUSD 30.6bnUSD 40.3bnUSD 53.1bnUSD 69.9bnUSD 92.1bn+31.7%
    NOPATUSD 25.1bnUSD 33.0bnUSD 43.5bnUSD 57.2bnUSD 75.4bn+31.7%
    Add depreciation & amortisationUSD 3.6bnUSD 4.7bnUSD 6.3bnUSD 8.2bnUSD 10.8bn+31.7%
    Less capital expenditureUSD -14.5bnUSD -19.1bnUSD -25.1bnUSD -33.0bnUSD -43.5bn+31.7%
    Less increase in working capitalUSD -10.2bnUSD -13.4bnUSD -17.7bnUSD -23.3bnUSD -30.6bn+31.7%
    Free cashflow to firmUSD 4.0bnUSD 5.3bnUSD 7.0bnUSD 9.2bnUSD 12.1bn+31.7%
    Discount factor0.95980.88430.81460.75050.6914-
    Present valueUSD 3.9bnUSD 4.7bnUSD 5.7bnUSD 6.9bnUSD 8.3bn+21.3%
    Present Value Of The ForecastUSD 29.4bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.666Reported 0.502, pulled toward 1.0 (Blume)
    Cost of equity8.66%Risk-free + beta x equity risk premium
    Cost of debt7.00%Assumed: risk-free + 2bp (interest expense not reported)
    Market capitalisationUSD 1028.1bn96.0% of capital
    Total debtUSD 42.5bn4.0% of capital, book value as a proxy
    Tax rate18.1%Effective, capped at statutory
    WACC8.55%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 885.39

    96% of EV

    Forecast FCFF, final year
    USD 12.1bn
    Capex at depreciation, working capital in reinvestment
    USD 75.4bn
    Less reinvestment at g/ROIC (9.2% of NOPAT)
    USD -6.9bn
    Capitalised
    USD 68.4bn
    ROIC (reported)
    27.2%
    Terminal value, undiscounted
    USD 1160.0bn
    Terminal value, discounted
    USD 802.0bn
    Enterprise value
    USD 831.5bn
    Less net debt
    USD 35.2bn
    Equity value
    USD 796.2bn

    Exit at 20.0x EBITDA

    Value per shareUSD 1575.75

    98% of EV

    Terminal value, undiscounted
    USD 2058.0bn
    Terminal value, discounted
    USD 1422.9bn
    Enterprise value
    USD 1452.3bn
    Less net debt
    USD 35.2bn
    Equity value
    USD 1417.1bn

    Spread between methods: 56%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    6.55%1192.521304.711444.341623.011859.96
    7.55%952.461023.531108.451211.811340.43
    8.55%782.08829.87885.39950.721028.79
    9.55%655.31688.86727.03770.87821.79
    10.55%557.63581.96609.18639.88674.80

    Outlined: this model. Green text: above today's price of 1152.93. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year31.7%39.0%+7.3pp
    EBIT margin35.7%44.4%+8.7pp
    Discount rate8.5%7.4%-1.2pp
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    Yahoo Finance and RBA data. General information, not advice. Methodology.