Stock Analysis on Net
Stock Analysis on Net

Eli Lilly & Co. (NYSE:LLY)

Present Value of Free Cash Flow to Equity (FCFE)

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In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to equity (FCFE) is generally described as cash flows available to the equity holder after payments to debt holders and after allowing for expenditures to maintain the company asset base.

Intrinsic Stock Value (Valuation Summary)

Eli Lilly & Co., free cash flow to equity (FCFE) forecast

US$ in thousands, except per share data

Microsoft Excel
Year Value FCFEt or Terminal value (TVt) Calculation Present value at 7.44%
01 FCFE0 9,442,400
1 FCFE1 13,974,884 = 9,442,400 × (1 + 48.00%) 13,007,271
2 FCFE2 19,215,564 = 13,974,884 × (1 + 37.50%) 16,646,736
3 FCFE3 24,403,772 = 19,215,564 × (1 + 27.00%) 19,677,544
4 FCFE4 28,430,233 = 24,403,772 × (1 + 16.50%) 21,336,950
5 FCFE5 30,135,666 = 28,430,233 × (1 + 6.00%) 21,050,900
5 Terminal value (TV5) 2,217,739,648 = 30,135,666 × (1 + 6.00%) ÷ (7.44% – 6.00%) 1,549,174,888
Intrinsic value of Eli Lilly & Co. common stock 1,640,894,289
 
Intrinsic value of Eli Lilly & Co. common stock (per share) $1,726.96
Current share price $731.33

Based on: 10-K (reporting date: 2023-12-31).

1 See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Required Rate of Return (r)

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Assumptions
Rate of return on LT Treasury Composite1 RF 4.81%
Expected rate of return on market portfolio2 E(RM) 13.55%
Systematic risk of Eli Lilly & Co. common stock βLLY 0.30
 
Required rate of return on Eli Lilly & Co. common stock3 rLLY 7.44%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rLLY = RF + βLLY [E(RM) – RF]
= 4.81% + 0.30 [13.55% – 4.81%]
= 7.44%

FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Eli Lilly & Co., PRAT model

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Average Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Selected Financial Data (US$ in thousands)
Cash dividends declared 4,221,300 3,667,500 3,201,700 2,786,200 2,430,500
Net income 5,240,400 6,244,800 5,581,700 6,193,700 8,318,400
Revenue 34,124,100 28,541,400 28,318,400 24,539,800 22,319,500
Total assets 64,006,300 49,489,800 48,806,000 46,633,100 39,286,100
Total Eli Lilly and Company shareholders’ equity 10,771,900 10,649,800 8,979,200 5,641,600 2,606,900
Financial Ratios
Retention rate1 0.19 0.41 0.43 0.55 0.71
Profit margin2 15.36% 21.88% 19.71% 25.24% 37.27%
Asset turnover3 0.53 0.58 0.58 0.53 0.57
Financial leverage4 5.94 4.65 5.44 8.27 15.07
Averages
Retention rate 0.46
Profit margin 23.89%
Asset turnover 0.56
Financial leverage 7.87
 
FCFE growth rate (g)5 48.00%

Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).

2023 Calculations

1 Retention rate = (Net income – Cash dividends declared) ÷ Net income
= (5,240,400 – 4,221,300) ÷ 5,240,400
= 0.19

2 Profit margin = 100 × Net income ÷ Revenue
= 100 × 5,240,400 ÷ 34,124,100
= 15.36%

3 Asset turnover = Revenue ÷ Total assets
= 34,124,100 ÷ 64,006,300
= 0.53

4 Financial leverage = Total assets ÷ Total Eli Lilly and Company shareholders’ equity
= 64,006,300 ÷ 10,771,900
= 5.94

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.46 × 23.89% × 0.56 × 7.87
= 48.00%

FCFE growth rate (g) implied by single-stage model

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (694,883,769 × 7.44% – 9,442,400) ÷ (694,883,769 + 9,442,400)
= 6.00%

where:
Equity market value0 = current market value of Eli Lilly & Co. common stock (US$ in thousands)
FCFE0 = the last year Eli Lilly & Co. free cash flow to equity (US$ in thousands)
r = required rate of return on Eli Lilly & Co. common stock

FCFE growth rate (g) forecast

Eli Lilly & Co., H-model

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Year Value gt
1 g1 48.00%
2 g2 37.50%
3 g3 27.00%
4 g4 16.50%
5 and thereafter g5 6.00%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 48.00% + (6.00% – 48.00%) × (2 – 1) ÷ (5 – 1)
= 37.50%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 48.00% + (6.00% – 48.00%) × (3 – 1) ÷ (5 – 1)
= 27.00%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 48.00% + (6.00% – 48.00%) × (4 – 1) ÷ (5 – 1)
= 16.50%