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Eli Lilly and Company
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== Valuation == {| class="wikitable" |+ !Unlevered Free Cash Flow (mn) | | | | | | | | | | |- |Fiscal Year |2018A |2019A |2020A |2021A |2022A |2023E |2024E |2025E |2026E |2027E |- |Revenue |24,556 |22,320 |24,540 |28,318 |28,541 |29,516 |30,772 |32,082 |33,447 |34,871 |- |COGS |(6,430) |(4,721) |(5,483) |(7,313) |(6,630) |(6,561) |(7,307) |(7,618) |(7,943) |(8,281) |- |Gross Profit |18,126 |17,598 |19,057 |21,006 |21,912 |22,954 |23,464 |24,463 |25,505 |26,590 |- |Operating Expenses |(5,307) |(5,595) |(6,086) |(7,026) |(7,191) |(8,140) |(7,477) |(7,795) |(8,127) |(8,473) |- |Selling, General, Administrative |(6,390) |(6,004) |(5,869) |(6,142) |(6,068) |(6,515) |(7,372) |(7,686) |(8,013) |(8,354) |- |Total Operating Expenses |(11,697) |(11,599) |(11,955) |(13,168) |(13,258) |(14,656) |(14,849) |(15,481) |(16,140) |(16,827) |- |Operating Profit (EBITDA) |6,429 |5,999 |7,101 |7,838 |8,653 |8,299 |8,616 |8,983 |9,365 |9,764 |- |D&A |1,609 |1,233 |1,324 |1,548 |1,523 |1,467 |506 |511 |517 |522 |- |EBIT |4,820 |4,767 |5,778 |6,290 |7,131 |6,832 |8,109 |8,471 |8,848 |9,242 |- |Operating Taxes |(564) |(628) |(1,036) |(574) |(562) |(783) |(821) |(856) |(892) |(930) |- |NOPAT (Net Operating Profit After Taxes) |4,256 |4,139 |4,741 |5,716 |6,569 |6,049 |7,288 |7,615 |7,956 |8,312 |- |(+) Depreciation & Amortization |1,609 |1,233 |1,324 |1,548 |1,523 |1,467 |506 |511 |517 |522 |- |(-) Capital Expenditures |(2,379) |(1,687) |(747) |(1,023) |(15) |(573) |599 |605 |611 |617 |- |(-) Change in NWC | -- |(6,727) |3,046 |(1,581) |(2,503) |(405) |(371) |5 |5 |6 |- |NWC |8,662 |1,934 |4,981 |3,400 |896 |492 |121 |126 |131 |137 |- |Current Assets (non cash) |20,550 |13,710 |17,462 |18,452 |18,035 |15,334 |16,288 |16,981 |17,704 |18,457 |- |Current Liabilitites |11,888 |11,775 |12,482 |15,053 |17,138 |14,842 |16,167 |16,855 |17,572 |18,320 |- |Unlevered Free Cash Flow |8,244 |13,786 |3,767 |9,867 |10,610 |8,493 |7,567 |7,517 |7,857 |8,211 |} {| class="wikitable" |+ !Assumptions | | | | | | | | | | |- |Fiscal Year |2018A |2019A |2020A |2021A |2022A |2023E |2024E |2025E |2026E |2027E |- |Revenue Growth | | -9.1% |9.9% |15.4% |0.8% |4.3% |4.3% |4.3% |4.3% |4.3% |- | | | | | | | | | | | |- |COGS % of Revenue | -26.2% | -21.2% | -22.3% | -25.8% | -23.2% | -23.7% | -23.7% | -23.7% | -23.7% | -23.7% |- |OE% of Revenue | -21.6% | -25.1% | -24.8% | -24.8% | -25.2% | -24.3% | -24.3% | -24.3% | -24.3% | -24.3% |- |SG&A % of Revenue | -26.0% | -26.9% | -23.9% | -21.7% | -21.3% | -24.0% | -24.0% | -24.0% | -24.0% | -24.0% |- |Tax % of EBIT | -8.8% | -10.5% | -14.6% | -7.3% | -6.5% | -9.5% | -9.5% | -9.5% | -9.5% | -9.5% |} {| class="wikitable" |+ !Fixed Assets Schedule | | | | | | | | | | |- |Fiscal Year |2018A |2019A |2020A |2021A |2022A |2023E |2024E |2025E |2026E |2027E |- |Beginning PP&E | |8,920 |8,405 |8,682 |8,985 |10,144 |9,329 |9,421 |9,514 |9,608 |- |D&A |1,609 |1,233 |1,324 |1,548 |1,523 |1,467 |506 |511 |517 |522 |- |CapEx |10,529 |718 |1,601 |1,851 |2,681 |651 |599 |605 |611 |617 |- |Ending PP&E |8,920 |8,405 |8,682 |8,985 |10,144 |9,329 |9,421 |9,514 |9,608 |9,703 |} {| class="wikitable" |+ !Assumptions | | | | | | | | | | |- |Fiscal Year |2018A |2019A |2020A |2021A |2022A |2023E |2024E |2025E |2026E |2027E |- |D&A as a % of Beginning PP&E (to revenue) | |5.5% |5.4% |5.5% |5.3% |5.4% |5.4% |5.4% |5.4% |5.4% |- |CapEx as a % of Beginning PP&E (to revenue) | |3.2% |6.5% |6.5% |9.4% |6.4% |6.4% |6.4% |6.4% |6.4% |} {| class="wikitable" |+ !Net Working Capital (mn) | | | | | | | | | | |- |Fiscal Year |2018A |2019A |2020A |2021A |2022A |2023E |2024E |2025E |2026E |2027E |- |Accounts Receivables |6,205 |5,542 |6,929 |8,127 |8,559 |8,088 |8,433 |8,792 |9,166 |9,556 |- |Merchandise Inventory |4,112 |3,191 |3,980 |3,886 |4,310 |4,229 |4,710 |4,910 |5,119 |5,337 |- |Other Current Assets |2,147 |2,539 |2,872 |2,531 |2,954 |3,017 |3,145 |3,279 |3,419 |3,564 |- |Current Assets (without cash) |12,463 |11,271 |13,781 |14,544 |15,823 |15,334 |16,288 |16,981 |17,704 |18,457 |- | | | | | | | | | | | |- |Accounts Payable and Accrued Expenses,Current |7,489 |7,171 |8,725 |9,529 |12,207 |9,736 |10,843 |11,304 |11,786 |12,287 |- |Financial Liabilities, Current |1,131 |1,499 |9 |1,538 |1,501 |1,055 |1,100 |1,147 |1,196 |1,247 |- |Provisions, Current |1,055 |916 |997 |958 |1,060 |1,154 |1,204 |1,255 |1,308 |1,364 |- |Defferred Liabilities, Current |0 |1 |2 |3 |4 |3 |3 |3 |3 |3 |- |Other Current Liabilities |2,213 |2,189 |2,750 |3,028 |2,370 |2,894 |3,017 |3,146 |3,280 |3,419 |- |Current Liabilities |11,888 |11,776 |12,484 |15,056 |17,142 |14,842 |16,167 |16,855 |17,572 |18,320 |} {| class="wikitable" |+ !Assumptions | | | | | | | | | | |- |Fiscal Year |2018A |2019A |2020A |2021A |2022A |2023E |2024E |2025E |2026E |2027E |- |Revenue |24,556 |22,320 |24,540 |28,318 |28,541 |29,516 |30,772 |32,082 |33,447 |34,871 |- |COGS |(6,430) |(4,721) |(5,483) |(7,313) |(6,630) |(6,561) |(7,307) |(7,618) |(7,943) |(8,281) |- | | | | | | | | | | | |- |Days Sales Outstanding (DSO) |91.0 |89.4 |101.6 |103.3 |108.0 |98.7 |98.7 |98.7 |98.7 |98.7 |- |Days Inventory Outstanding (DIO) |230.2 |243.3 |261.3 |191.3 |234.0 |232.0 |232.0 |232.0 |232.0 |232.0 |- |Days Payable Outstanding (DPO) |419.3 |546.8 |572.9 |469.1 |662.8 |534.2 |534.2 |534.2 |534.2 |534.2 |- | | | | | | | | | | | |- |Other Current Assets as a % of Revenue |8.74% |11.38% |11.70% |8.94% |10.35% |10.22% |10.22% |10.22% |10.22% |10.22% |- |Financial Liabilities, Current as a % of Revenue |4.6% |6.7% |0.0% |5.4% |5.3% |3.58% |3.58% |3.58% |3.58% |3.58% |- |Provisions, Current as a % of Revenue |4.3% |4.1% |4.1% |3.4% |3.7% |3.91% |3.91% |3.91% |3.91% |3.91% |- |Defferred Liabilities, Current as a % of Revenue |0.0% |0.0% |0.0% |0.0% |0.0% |0.01% |0.01% |0.01% |0.01% |0.01% |- |Other Current Liabilities as a % of Revenue |9.0% |9.8% |11.2% |10.7% |8.3% |9.81% |9.81% |9.81% |9.81% |9.81% |} {| class="wikitable" |+ ! colspan="3" |Weighted Average Cost of Capital (WACC) ! |- |Market Cap (mn) | |520,210 | |- |Book value of debtDebt (mn) | |16,239 | |- | | | | |- |Cost of Debt | |9.24% | |- |Tax Rate (5 year average) | |11.74% | |- |D/(D+E) | |3.03% | |- |After Tax Cost of Debt | |8.16% | |- | | | | |- |Risk Free Rate (10-Yr Treasury Yield) | |4.19% | |- | colspan="2" |S&P500 Market Return yearly for last 10 years 2012-2022 |13.79% | |- |Market Risk Premium | |9.60% | |- |Beta | |0.35 | |- |E/(D+E) | |96.97% | |- |Cost of Equity | |7.55% | |- | | | | |- |WACC | |7.57% | |} {| class="wikitable" |+ !Unlevered Free Cash Flow (mn) | | | | | | | | | | |- |Fiscal Year |1900A |1900A |1900A |1900A |1900A |2023E |2024E |2025E |2026E |2027E |- |Unlevered Free Cash Flow |8,244 |13,786 |3,767 |9,867 |10,610 |8,493 |7,567 |7,517 |7,857 |8,211 |- | | | | | | | | | | | |- |Projection Year | | | | | |1 |2 |3 |4 |5 |- |Present Value of Free Cash Flow | | | | | |9,136 |8,756 |9,356 |10,518 |11,825 |- | | | | | | | | | | | |- | colspan="2" |Implied Share Price Calculation | | ! colspan="7" |Sensitivity Table |- |Sum of PV of FCF (5 year projected Assumption) | |49,590 | | | | | | | | |- |Growth Rate | |3.57% | | | | colspan="5" |Growth Rate |- |WACC | |7.57% | | |599.78 |2.57% |3.07% |3.57% |4.07% |4.57% |- |Terminal Value | |212,743 | | rowspan="5" |WACC |6.57% |612.85 |556.89 |556.89 |612.85 |780.78 |- |PV of Terminal Value | |147,729 | |7.07% |693.07 |619.75 |619.75 |693.07 |927.80 |- |Enterprise Value | |197,319 | |7.57% |693.07 |619.75 |619.75 |693.07 |927.80 |- |(+) Cash | |2,212 | |8.07% |612.85 |556.89 |556.89 |612.85 |780.78 |- |(-) Debt | |16,239 | |8.57% |502.75 |467.48 |467.48 |502.75 |599.78 |- |(-) Minority Interest | | -6,498 | | | | | | | | |- |Equity Value | |189,790 | | | | | | | | |- |Diluted Shares Outstanding (mm) | |949.30 | | | | | | | | |- |Implied Share Price | |599.78 | | | | | | | | |- |Current Price | |548 | | | | | | | | |- |Upside | |9.45% | | | | | | | | |- |Valuation | |TRUE | | | | | | | | |} The result of base case of the DCF valuation indicating the implied shared price is 599.78, comparing to the current price, it has a 9.45% increase margin, where the growth rate and the WACC is 3.57% and 7.57% respectively. The Beta is 0.35, which indicating that it is less correlated to the S&P market, which is a typical number for medical companies on medicine that is not focusing on technologies such as medical devices and robotics. For the bull case and bear case, it has a 15.3% increase and -9.2% decrease respectively. In these 2 cases, a different approach has been applied by comparing the earnings using EBITDA and free cash flow equity. The 3-year EBITDA Growth Rate per share is 9.1, which is the same as the median of the range over the past 10 years, and also 52% higher than other companies in the biotechnology industry. The 3-year revenue growth rate per share is 9.8, which is also higher than the median of the range over the past 10 years of 6.5, and it is 62.6% better than other companies in the Biotechnology industry. Furthermore, the 3-year Book Growth rate per share is 60.3, which is almost at the highest value of the range over the past 10 years. Finally, the 3-year FCF Growth rate is 11 which is stronger than 51.2% of the companies in the Biotechnology industry. ====== '''Assumption:''' ====== # The growth rate is obtained using the difference between the terminal value in the next 5 years comparing to the actual value in the past 5 years. # WACC: Risk free rate taking the current 10 year treasury yield rate at 4.19%, S&P500 market return for the last 10 years from 2012-2022 of 13.79%. # Base case: constant average of numbers in the next 5 years. The logic behind is that LLY is company focusing on medicine, which has a strong economic moat in the industry and a usually parking of money during a bear market according to the Dow's theory.
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