Eli Lilly Stock Analysis

Company Overview

Eli Lilly (NYSE: LLY) was founded in 1876, and is currently the 10^th largest pharmecutical company in the world.  It employs 40,000 people in 143 countries world wide. 

The company has patents on many medicines you probably have heard of or have taken, including Cymbalta, Cialis, and Zyprexa.  They also have a portfolio of animal health products that are mostly marketed to commercial farms.

The main issue LLY is facing is patent expiration.  Within the next 10 years the majority of their big revenue earning drugs are coming off patent, opening up the path for generic competition. Unless LLY can get a few very successful drugs to market in the next few years, they will lose substantial revenue, almost all the drugs that bring in over 1 billion dollars annually are in this group.  They are

• Alimta is protected by a compound patent (2016)

• Byetta is protected by a patent covering its use in treating type 2 diabetes (2017)

• Cialis is protected by compound and use patents (2017)

• Cymbalta is protected by a compound patent (2013)

• Effient is protected by a compound patent (2017)

• Evista is protected by patents on the treatment and prevention of osteoporosis (2012 and 2014), and its dosage form (2017). Evista for use in breast cancer risk reduction is protected by orphan drug exclusivity (2014)

• Gemzar is protected by a compound patent (November 2010) and a patent covering its antineoplastic use (2013)

• Humalog is protected by a compound patent (2013)

 • Strattera is protected by a patent covering its use in treating attention deficit-hyperactivity disorder (2016)

 • Zyprexa is protected by a compound patent (October 2011)

Financial Analysis

Dividends

Dividend Growth	CAGR
10 year	7.22%
5 year	6.56%
1 year	4.26%

Payout Ratios	2009	10 yr Avg.
EPS	50%	44%
Cash	63.13%	95.95%

LLY is a dividend aristocrat that has increased dividends annually for 42 years

This graph shows dividend growth (blue) vs. EPS growth (red)

Income Statement

Revenue Growth	CAGR	EPS Growth	CAGR
10 year	7.98%	10 year	3.87%
5 year	10.50%	5 year	21.47%
1 year	7.19%	1 year	P

Margins	10 yr Avg.
Gross	77.65%
Net	16.61%

In the past decade LLY has bought back shares at 0.44% annually

Balance Sheet

Balance Sheet Ratios	2009	10 yr Avg.
Current Ratio	1.90	1.67
Lg T Debt / Equity	0.70	0.49
Tot Debt / Equity	0.70	0.62
Debt / Total Capital	41.16%	36.38%
Cash Return / Tot Capital	22.06%	19.08%

Cash Flow

Free Cash Flow	CAGR	FCF Per Share	CAGR
10 year	1.74%	10 year	1.54%
5 year	55.19%	5 year	54.51%
1year	-43.76%	1 year	-44.25%

Stock Price

Current Price	37.08
P/E	9.41
Est Forward P/E	8.04
Div Yield	5.29%
Intrinsic Value	80.33
NPV	35.67
	High P/E	Low P/E	High Yield	Low Yield
10 year	24.58	17.46	3.52%	2.34%
5 year	12.04	11.54	4.70%	3.21%

Conclusion

I am not planning on buying into LLY at the moment.  The company, unlike other large pharmaceuticals like JNJ or ABT, has no other businesses besides its drug business.  And that business may quickly be coming to an end unless they can move some new compounds out of their pipeline and into the market. 

While I have read that they have one of the most promising drug pipelines, until I see some revenue I am hesitant. 

Dividend growth is slowing, but payout ratios are acceptable, with room to grow.  However, LLY has seen a few years where the EPS payout ratio was well over 100%, which is why the 10 year average is so high.  Also, since last year saw a net loss per share, that’s why there is just a P in that cell, for profit.  

Debt is higher than I would like to see, and there was no negative free cash flow, but it is wildly variable. 

The p/e is below the 10 and 5 year average lows, and the yield is above the 10 and 5 year average highs.  Even with this low p/e and high yield, I will keep my eye on LLY but I am not ready to buy in, what with so many other high quality companies selling at discounts right now. 

Full Disclosure:  I do not have any stake in LLY