About Eli Lilly and Company
Last week I was at my local neighborhood Walmart and as I was making my way from my vehicle towards the front entrance of the store, I noticed a handful of large red tents, under them tables and people, oh my.
Being the rather curious individual I am (some just call it being weird), I made my way over to one of the tents and simply asked one of the occupants what was going on, to which they basically replied that their company was collecting blood samples from certain requested, eligible and willing participants, and after listening to their rather long and drawn out explanation of what they were using it for, I nodded my head a few times and requested a cool red pen.
Quid pro quo.
Then I proceeded to walk into the Walmart and one of the hourly employees asked me if I had any questions about what the pharmaceutical company outside was doing, and I lightly chuckled and replied “plenty.”
Oh, by the way, the company was one of the largest and best performing pharmaceutical companies on the planet, Eli Lilly and Company.
Headquartered in Indianapolis, Indiana, Eli Lilly and Company has gradually become an absolute and utter staple in the ever so (sadly) growing diabetes treatment segment of the greater overall pharmaceutical industry, the company developing, manufacturing and selling some of its most important blockbuster treatments by the names of Trulicity, Mounjaro and Zepbound, which have sensibly all been on recent tears given the sudden interest in weight loss drugs, including that of its most threatening European competitor, Novo Nordisk’s Wegovy. I really do hate to say it, however, the diabetes treatment market as a whole is growing like gangbusters and given the reasons behind it combined with the more recent trends around diabetes (i.e., the simple fact of the matter is that all humans around the globe have been becoming less and less healthy), I don’t see this market nor demand for Lilly’s products slowing down anytime soon.
An objective business positive for a company such as this one, nonetheless.
With that continued market growth has also followed a share price gain of north of an astonishing 765% over the last five years alone for Eli Lilly’s stock (NYSE: LLY), with shares appreciating around 113% over the last twelve months alone, so it can be generally deducted that buying your slice of the Lilly pie at this current juncture isn’t likely going to be the most inexpensive venture, however, as briefly mentioned before, this market is still ripe for growth and I personally deem it to be just the beginning and Lilly will most definitely be along for the ride.
Nevertheless, while the diabetes market(s) are huge revenue generators and drivers for Eli Lilly and Company, it also is well known for its breast cancer drug by the name of Verzenio as well as Taltz, which is intended to treat autoimmune diseases such as moderate-to-severe plaque psoriasis and psoriatic arthritis, among a handful of others, that also just happen to also (again, sadly) be on the rise in terms of popularity and global organic patient demand.
The last thing I will say before delving into this company’s financials is that I’ve noticed over the last handful of years just how consistent and strategic this company has been as it relates to acquiring smaller, leaner and growth-driving companies that also more often than not operate within wide, deep and growing drug treatment categories, with Lilly most recently announcing its intentions of buying out immunology staple Morphic Holding for $3.2 billion along with other recent blockbuster acquisitions such as its acquisition of POINT Biopharma, Sigilon Therapeutics, Versanis Bio and others.
This isn’t likely to stop anytime soon, which, if the past is even just an ever so slight indicator of the future, I’m all for it.
Now, for tonight’s main course, Eli Lilly and Company and its financials.
Lilly’s stock financials
Trading at a commanding share price of $804.62 with a price-to-earnings (P/E) ratio of a whopping 118.43, a market capitalization of $764.72 billion and an annually issued dividend offered to its shareholders of a healthy $5.20, Eli Lilly and Company’s stock (NYSE: LLY) is most certainly expensive on both account of being an expensive stock (given that one single share of stock costs nearly $1,000) and also on the basis of the company’s present price-to-earnings ratio, as we have seen time and time again that it is most commonly held that if a company has a P/E above the fair value benchmark of 20, it is said to be trading at a premium and let’s just say Eli Lilly’s current price-to-earnings ratio is a very long way from 20.
Lastly, I will say that an annual dividend of $5.20 shelled out to its shareholders is a fairly good indicator that Lilly and Company have the cash flow to back such a dividend up, but of course, I will be checking on this later within the context of the company’s, you good guesser, you, cash flow statement.
Regarding the company’s balance sheet, Eli Lilly and Company’s executive managers are tasked with overseeing and strategically deploying total assets in the amount of $64 billion and $53.2 billion in terms of total liabilities, which is good on all fronts, in my humble opinion, as the company has a good berth between the amount of its total assets and liabilities (i.e., enough cumulative asset coverage with respect to its outstanding total liabilities) but it is also evidently putting a lot of its capital to work, a good amount in the form of debt financing, which is largely due to the company’s aggressive non-organic expansion by means of making acquisitions but also a byproduct of the company finding new manufacturing sites around the country and setting up new development labs as well, both measures being obviously conducive towards building out a bigger, better and stronger Lilly.
No complaints relating to its balance sheet from me.
Moving right along to the company’s income statement, Eli Lilly and Company’s revenues during and between 2019 and 2023 have grown a consistent amount each and every year during this time interval, basing out at a relative low of $22.3 billion in 2019, subsequently stepping up each year to its latest reported figure of $34.1 billion, as, of course, reported in 2023. For a company operating off of an already pretty large base, this is great revenue growth and given my previous statement regarding the entire diabetes treatment market alone, I see little to absolutely no reason(s) for this trend not continuing in the short and intermediate-terms. I will still concede, however, that Lilly’s price-to-earnings ask is still very aggressive, even within the scope of its impressive recent revenue growth and its prospects moving forward. Of course, Eli Lilly’s stock price (NYSE: LLY) could theoretically continue rising and I could make myself look like a real numbnuts for not saying it’s a screaming buy even though it is very expensive, but all I am saying is that in the confines of risk-reward, at this current juncture, the risk-reward spectrum for Lilly’s shares appear to be skewed far more towards the risk than the reward side.
With respect to the company’s cash flow statement, Eli Lilly and Company’s total cash from operations (also measured between and during 2019 and 2023) have ranged between $4.2 billion (2023) and a relative high of $7.5 billion, as reported in the prior year, which is a narrow enough range, telling me that this company’s cash flow generation capability is just about consistent enough along with the simple fact of the matter which is that Lilly, like basically every single other drug company, invests heavily during some years and sometimes less heavily throughout others, which makes complete sense.
Value accretive acquisition opportunities come and go.
Lilly’s stock fundamentals
According to the figures displayed on Charles Schwab’s platform, Eli Lilly and Company’s net profit margin is presently tucked away at 17.08%, which is somewhat of a very strong average when considering the profit margins of some of its most comparable peers. For example, Schwab’s platform also has Johnson & Johnson’s net profit margin at 19.93% as well as yet another competitor, AstraZeneca, with its listed net profit margin being 13.31%.
From my perspective, on both the basis of competition but also on a standalone basis, Lilly’s net profit margin is in good shape, extracting a tidy sum of cash from the drugs it sells while remaining well in line with its formidable foes.
Should you buy Eli Lilly stock?
My biggest gripe with this company is its stock price and the fact that it has frankly performed too well and had far too many buyers than sellers in recent history.
If you didn’t merely skip to the bottom of this stock analysis article to read my rating, you already know just how bullish I am on the diabetes segment of the pharmaceutical industry and with Lilly’s additional firepower in other drugs and treatments thereof, however, despite its strong (and seemingly sufficiently covered) dividend, its well positioned balance sheet, growing year-over-year (YOY) revenues and overall consistent cash flows and margins, I still cannot look at myself in the mirror with any ounce of respect and justify offering this company’s stock (NYSE: LLY) a “buy” rating right now given its valuation, hence the “hold” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.
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