Eli Lilly qualifies for the Enterprising Investor but not the Defensive Investor due to the low current ratio, lack of earnings stability over the last ten years, and the high PB ratio. Defensive Investors should look to other opportunities while Enterprising Investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.
The company has grown its EPSmg (normalized earnings) from $2.72 in 2010 to an estimated $3.58 for 2014. This level of demonstrated growth is in line with the market’s implied estimate for earnings growth of 4.85% over the next 7-10 years. The ModernGraham valuation model therefore returns an estimate of intrinsic value falling within a margin of safety relative to the current price, indicating the company is fairly valued at the present time.
Be sure to check out previous ModernGraham valuations of Eli Lilly & Co. for more perspective!