Stock Analysis on Net

Eli Lilly & Co. (NYSE:LLY)

Dividend Discount Model (DDM)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Dividends are the cleanest and most straightforward measure of cash flow because these are clearly cash flows that go directly to the investor.


Intrinsic Stock Value (Valuation Summary)

Eli Lilly & Co., dividends per share (DPS) forecast

US$

Microsoft Excel
Year Value DPSt or Terminal value (TVt) Calculation Present value at 7.35%
0 DPS01 4.52
1 DPS1 6.69 = 4.52 × (1 + 48.00%) 6.23
2 DPS2 9.21 = 6.69 × (1 + 37.69%) 7.99
3 DPS3 11.73 = 9.21 × (1 + 27.38%) 9.48
4 DPS4 13.73 = 11.73 × (1 + 17.07%) 10.34
5 DPS5 14.66 = 13.73 × (1 + 6.75%) 10.28
5 Terminal value (TV5) 2,615.02 = 14.66 × (1 + 6.75%) ÷ (7.35%6.75%) 1,834.15
Intrinsic value of Eli Lilly & Co. common stock (per share) $1,878.48
Current share price $806.14

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

1 DPS0 = Sum of the last year dividends per share of Eli Lilly & Co. common stock. 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)

Microsoft Excel
Assumptions
Rate of return on LT Treasury Composite1 RF 4.57%
Expected rate of return on market portfolio2 E(RM) 13.82%
Systematic risk of Eli Lilly & Co. common stock βLLY 0.30
 
Required rate of return on Eli Lilly & Co. common stock3 rLLY 7.35%

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]
= 4.57% + 0.30 [13.82%4.57%]
= 7.35%


Dividend Growth Rate (g)

Dividend growth rate (g) implied by PRAT model

Eli Lilly & Co., PRAT model

Microsoft Excel
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
 
Dividend 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
= (5,240,4004,221,300) ÷ 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%


Dividend growth rate (g) implied by Gordon growth model

g = 100 × (P0 × rD0) ÷ (P0 + D0)
= 100 × ($806.14 × 7.35%$4.52) ÷ ($806.14 + $4.52)
= 6.75%

where:
P0 = current price of share of Eli Lilly & Co. common stock
D0 = the last year dividends per share of Eli Lilly & Co. common stock
r = required rate of return on Eli Lilly & Co. common stock


Dividend growth rate (g) forecast

Eli Lilly & Co., H-model

Microsoft Excel
Year Value gt
1 g1 48.00%
2 g2 37.69%
3 g3 27.38%
4 g4 17.07%
5 and thereafter g5 6.75%

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

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 48.00% + (6.75%48.00%) × (2 – 1) ÷ (5 – 1)
= 37.69%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 48.00% + (6.75%48.00%) × (3 – 1) ÷ (5 – 1)
= 27.38%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 48.00% + (6.75%48.00%) × (4 – 1) ÷ (5 – 1)
= 17.07%