Eli Lilly (LLY): fair value

Fair-value band

The normal range for this name runs from $855 (cheap) to $1,805 (expensive); it is now priced at $1,240.

That is 0.3σ below this name's own normal premium.

Is Eli Lilly undervalued?

Fair, relative to its own history. Eli Lilly trades at $1,240, 2% above the fair value this model estimates, but it has habitually traded 9% above fair value, and today's gap is 0.3σ below that norm, within the range it normally trades in, so the verdict is Fair: priced normally for itself, not necessarily fairly valued.

Diligence checklist

8 pass · 2 fail · 1 no data

• FAILCash actually collected from profit, last 12 months: 81%XBRL · Eli Lilly only turns 81 cents of every reported dollar of profit into actual cash. I want at least 85. When the gap is this wide the profit is sitting in unpaid invoices and unsold inventory rather than in the bank. It dipped below 70 cents in 1 of the last 3 years. One year is a wobble; two would end the work.
• PASSGap between paper profit and real cash: -1.1%XBRL · Eli Lilly's "profit on paper" and "cash in the bank" gap is small enough to pass.
• PASSDebt compared to one year of cash earnings: 1.29xXBRL · It would take 1.29 years of earnings to clear what Eli Lilly owes, net of the cash it holds. My limit for a name I would buy is three years, so this passes, though the balance sheet is doing more of the work than it does at the top of this list.
• PASSHow much more it earns on capital than that capital costs: +19.46ppXBRL · Return on capital is far higher than what that capital costs, so every dollar Eli Lilly puts to work turns into much more than a dollar of value. A +19 point gap is wide: reinvesting is genuinely worth doing here, which is what makes growth valuable rather than merely expensive. The gap is wider than it was at the start of the window.
• PASSStock sold by executives and directors on the open market, last 6 months: $0.0MEDGAR · Nobody running Eli Lilly sold a single share on the open market in the last 6 months. That is the alignment I want: the people with the most information about the business are keeping their money in it. A further $18.8M went out under pre-planned 10b5-1 schedules, which I don't count: those sales are set up months ahead and say nothing about what management thinks today. Another $15.8M was sold by holders of 10% or more of the company (Lilly Endowment Inc $15.8M). They file the same forms but they don't run the business, so they don't count toward this test. Options being exercised, and shares held back to cover the tax on them, are not sales and I don't count them either.
• PASSHow long the CEO has run this company: 9.8 yearsTEXT · Eli Lilly's chief executive has held the job since January 1, 2017, which is 9.8 years and covers a full cycle: good years and bad ones, both on this person's record. That is long enough for the record to mean something. Time served isn't the same as doing the job well, though, so read this next to the return-on-capital line above, which covers the same years. filing ↗
• PASSProfit margin held up during the last sales slump: 71.0% vs 74.7% baseXBRL · The last time Eli Lilly's revenue fell, its profit margin per unit sold only slipped a little, from about 74.7% to 71.0%. It means Eli Lilly isn't being forced to cut prices to keep product moving, which is what a company with a weak competitive position has to do. This is the accounts talking, not the filing: I'm reading the 4 quarters from December 2016 to September 2017, measured against the year going into it, and a shift in what the company sold can imitate pricing power either way.
• FAILNormal profit margin across a full business cycle: FCF margin 22.8% vs 11.5% medianXBRL · Eli Lilly is earning a 22.8% cash margin against a long-run average of 11.5%, 99% better than normal. This is what a cycle peak looks like, and paying for peak margins as though they were permanent is the classic way to overpay for a good business. My valuation grows the average instead. Across the window the margin ran between 1.0% in March 2024 and 22.8% in June 2026.
• N/AHow much of the stock trades on an average day: $2,661MMARKET · Eli Lilly trades so much volume that this basically isn't a concern. There's no pass or fail here because the answer depends on how big a position I'd actually want to take.
• PASSShare of revenue from its single biggest customer: no customer 10%+ of revenue disclosedTEXT · Eli Lilly's February 12, 2026 10-K doesn't disclose any customer at 10% or more of revenue. The accounting rules require that disclosure only when it applies, so its absence means no single customer clears that bar, which is well inside the quarter of revenue where I stop work. This comes from the filing's prose rather than a tagged number: the percentages sit in an XBRL field the SEC's bulk data drops. filing ↗
• PASSWhether the company switched auditors in the last 2 years: noneEDGAR · Companies sometimes switch accounting auditors right before something bad is uncovered which can be a warning sign. Eli Lilly hasn't changed auditors in the last 2 years, so there's no such red flag here.