Since a couple of months I started posting the analyses on Gurufocus.com. Hence I decided to share here just the summary and graphs. In case you'd like to read the full analysis, go check it out on the link here, it's free of charge. Valuation is an art on its own. But let's make some bold assumptions and see where it goes from there. Let's assume the revenue for the next couple of years will grow to a range of $89.90 billion to $100.4 billion thanks to the approval of donanemab ($4 billion per year), the overcoming of the shipping volumes obstacle for the incretins segment ($54 billion to $67.5 billion per year on tirzepatide and biosimilars) and the retention of the market share for the remaining compounds ($28.90 billion in the previous fiscal year). Considering a price-sales ratio of 6.4, which is the average for the biotech sector (e.g., Abbvie (ABBV), Amgen (AMGN), Vertex (VRTX)), this translates to a target price between $575 and $643 based on the estimated sales range. A much lower number will result for the average price-sales ratio of the pharmaceutical sector (e.g., Johnson & Johnson (JNJ), Merk (MRK)) of 4.50; indeed, this will be around $407 to 452 per share. Considering the actual share price of around $870, Mr. Market is awarding the stock a significant premium in the range of 35% to 115%. Even without considering the profitability of the company that generally discounts the sales, it appears to have a significant premium already factored in. The legacy company is on top of the incretins game and has plenty of room to grow sales-wise. Even considering the brightest future outcome and the highest estimates, it appears the market has already factored in a significant premium of at least 35% of the average price expected for the sector. Investors need not fear holding on to some of the shares if already bought, but should carefully consider reducing their positions and perhaps not adding to them.
Assuming the rosier expectations will positively unfold, a reality check is done to compare the current valuation to informative financial ratios
Summary
Is Eli Lilly worth the price?
Conclusion
--- Disclosure: I/we are long LLY
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