A genuinely elite compounder — 30%+ ROIC, ~25% EPS CAGR, the best asset in the largest drug market ever — that has already re-rated +94% off its August-2025 low to fair value. Superb company, unexciting entry price.
Quality is exceptional; the only soft scores are valuation and balance-sheet/FCF optics during the capex build.
At $1,212 the base FCF path only reconciles to intrinsic value if you discount LLY at ~7.3% — i.e. the market is applying a quality/low-beta cost of capital and assuming near-flawless GLP-1 execution with benign net pricing. On a normal ~8.8% cost of capital the DCF says the shares are ~29% rich (and even our Bull path is worth only ~$1,200 at that rate); on forward P/E (33× 2026E, 27× 2027E) they are cheap vs their own history but rich vs peers. The bull and bear both live inside the pricing debate, not the volume one.
We rate LLY HOLD. The business is close to best-in-class in all of pharma: Mounjaro + Zepbound are a >$40B/yr franchise growing ~50%+, oral orforglipron (Koundeo) just opened a far larger TAM, ROIC runs ~30%+ against an ~8-9% cost of capital, and the pipeline (retatrutide, donanemab, oncology, I&I) is deep. But after a 94% run to all-time highs the risk/reward is balanced: our forward-P/E base target (~$1,290) is only ~6% above spot, our fundamentals-WACC DCF is below spot, and the one debate that matters — net price erosion, now guided low-to-mid-teens vs 'single-digit' a year ago, plus employer/Part-D access wrinkles — is not yet resolved. We would become buyers on a pullback toward the 50-day (~$1,050) or on evidence orforglipron is inflecting scripts.
| Business & moat | Incretin duopoly leader; dual-agonist efficacy edge, oral optionality, scale moat in manufacturing | |
| Earnings quality | Non-GAAP clean; GAAP↔non-GAAP gap modest now; NI→FCF conversion poor during capex/WC build | |
| Growth | ~25% non-GAAP EPS CAGR 2025→28E; revenue $65B→~$99B by 2027E | |
| Returns on capital | ROIC ~30-34%, ROE ~78% — vast spread over ~8.8% WACC | |
| Balance sheet | ND/EBITDA ~1.3× falling; heavy but fundable capex; well-laddered debt | |
| Valuation | 33× 2026E / 27× 2027E; DCF at 8.8% WACC below spot; ~+6% base upside | |
| Sentiment/technicals | ADX ~60 strong uptrend but RSI 67 and at ATH after +94%; extended near-term |
Eli Lilly is a global pharmaceutical company that has become the defining winner of the GLP-1 / incretin era. Its tirzepatide franchise — Mounjaro (type-2 diabetes) and Zepbound (obesity) — combined for ~$12.8B in Q1 2026 alone (about two-thirds of revenue) and is growing >50%. In April 2026 Lilly launched Koundeo (orforglipron), the first oral GLP-1 pill with no food/timing restrictions, expanding the addressable market well beyond injectables. Around this core sit a fast-growing 'new-product' cohort — Verzenio (oncology), Taltz/Omvoh/Ebglyss (immunology), Jaypirca (hematology), Kisunla/donanemab (Alzheimer's) — plus legacy diabetes (Jardiance, Trulicity, Humalog).
Wide but contestable. Sources: (1) clinical superiority — tirzepatide's dual GIP/GLP-1 mechanism out-performs single-agonist semaglutide head-to-head; (2) an oral pill (orforglipron) few rivals can match near-term; (3) a manufacturing scale moat — >$55B committed since 2020, the largest capacity build in industry history, which is itself a barrier as demand outstrips supply; (4) a deep next-gen pipeline (retatrutide triple-agonist, eloralintide, oral maintenance).
Hyper-growth, early-to-mid — incretin penetration is ~8.5M of ~170M eligible U.S. patients and 'high hundreds of millions' globally (mgmt).
The obesity/incretin market is the largest therapeutic opportunity in pharmaceutical history — a duopoly (Lilly, Novo Nordisk) supplying a chronic, self-pay-heavy, globally under-penetrated condition. Demand has outstripped supply for two years; the constraint is shifting from capacity to access and price.
Demand drivers & cycle
Structure & competitive dynamics
Lilly is the share and science leader — >53% ex-U.S. incretin share, ~6 of 10 U.S. incretin scripts, and the only oral pill at launch scale — but it is trading efficacy leadership for a steeper 2026 net-price give-back (low-to-mid-teens) to defend and expand volume.
Revenue nearly doubled in two years (FY23 $34B → FY25 $65B); non-GAAP EPS compounded ~55%/yr. The story now is margin leverage vs. net-price give-back, and the inflection of free cash flow as the manufacturing build crests.
| $M unless noted | FY21 | FY22 | FY23 | FY24 | FY25 | FY26E | FY27E |
|---|---|---|---|---|---|---|---|
| Revenue | $28,318 | $28,541 | $34,124 | $45,043 | $65,179 | $85,144 | $98,540 |
| Revenue YoY % | — | 0.8% | 19.6% | 32.0% | 44.7% | 30.6% | 15.7% |
| Gross margin % | 74.2% | 76.8% | 79.2% | 81.3% | 83.8% | 82.5% | 83.0% |
| EBITDA — unadj. | $8,043 | $8,661 | $8,568 | $15,228 | $27,937 | $40,000 | $48,000 |
| EBITDA (unadj.) YoY % | — | 7.7% | -1.1% | 77.7% | 83.5% | 43.2% | 20.0% |
| EBITDA (unadj.) margin % | 28.4% | 30.3% | 25.1% | 33.8% | 42.9% | 47.0% | 48.7% |
| EBITDA — adj. (add-back IPR&D) | $8,443 | $9,261 | $11,668 | $18,028 | $29,537 | $41,500 | $49,500 |
| Adj. EBITDA YoY % | — | 9.7% | 26.0% | 54.5% | 63.8% | 40.5% | 19.3% |
| Adj. EBITDA margin % | 29.8% | 32.4% | 34.2% | 40.0% | 45.3% | 48.7% | 50.2% |
| Adj. vs unadj. gap % | 5.0% | 6.9% | 36.2% | 18.4% | 5.7% | 3.8% | 3.1% |
| Net income (GAAP) | $5,582 | $6,245 | $5,240 | $10,590 | $20,638 | $30,987 | $37,835 |
| Net margin % | 19.7% | 21.9% | 15.4% | 23.5% | 31.7% | 36.4% | 38.4% |
| R&D expense | $6,931 | $7,191 | $9,313 | $10,991 | $13,338 | $15,400 | $17,700 |
| R&D % of revenue | 24.5% | 25.2% | 27.3% | 24.4% | 20.5% | 18.1% | 18.0% |
| EPS — GAAP (dil.) | $5.85 | $6.57 | $5.80 | $11.71 | $22.95 | $34.60 | $42.23 |
| EPS — normalized (non-GAAP) | $8.16 | $7.64 | $6.32 | $12.99 | $24.21 | $36.62 | $44.56 |
| Norm. EPS YoY % | — | -6.4% | -17.3% | 105.5% | 86.4% | 51.3% | 21.7% |
| Free cash flow | $5,388 | $4,600 | -$3,152 | $414 | $8,972 | $22,000 | $31,000 |
| FCF YoY % | — | -14.6% | -168.5% | -113.1% | 2067.1% | 145.2% | 40.9% |
| FCF margin % | 19.0% | 16.1% | -9.2% | 0.9% | 13.8% | 25.8% | 31.5% |
| Net debt / EBITDA (x) | 1.6x | 1.6x | 2.6x | 2.0x | 1.3x | 0.8x | 0.6x |
FY26E/FY27E: revenue & GAAP net income = the data provider analyst consensus; non-GAAP EPS = consensus (FY26E midpoint of company guide $35.50–37); EBITDA forward built from NI+tax+interest+D&A (consensus EBITDA feed discarded as unreliable — reads below net income); FCF FY26E/27E = our proprietary base path. Adjusted EBITDA adds back acquired IPR&D (approx from 10-K disclosures).
| $M unless noted | Q1'25 | Q2'25 | Q3'25 | Q4'25 | Q1'26 | Q2'26E |
|---|---|---|---|---|---|---|
| Revenue | $12,728 | $15,558 | $17,601 | $19,292 | $19,799 | $20,478 |
| Revenue YoY % | 45.2% | 37.6% | 53.9% | 42.6% | 55.5% | 31.6% |
| Revenue QoQ % | -5.9% | 22.2% | 13.1% | 9.6% | 2.6% | 3.4% |
| Gross margin % | 82.5% | 84.3% | 82.9% | 85.1% | 81.9% | 82.0% |
| EBITDA — unadj. | $4,163 | $7,504 | $7,882 | $8,388 | $9,691 | $9,900 |
| EBITDA margin % | 32.7% | 48.2% | 44.8% | 43.5% | 48.9% | 48.3% |
| EPS — GAAP (dil.) | $3.06 | $6.29 | $6.21 | $7.39 | $8.26 | $8.45 |
| EPS — non-GAAP | $3.34 | $6.31 | $7.02 | $7.60 | $8.55 | $8.80 |
| Non-GAAP EPS YoY % | — | — | — | — | 156.0% | 39.5% |
| Free cash flow | -$1,601 | $1,283 | $8,612 | $678 | $3,007 | $4,500 |
| FCF margin % | -12.6% | 8.2% | 48.9% | 3.5% | 15.2% | 22.0% |
Q2'26E = consensus. Non-GAAP EPS: Q1'25 $3.34 and Q1'26 $8.55 are disclosed; Q2–Q4'25 approximated to reconcile to FY25 non-GAAP $24.21. Q1'26 was a clear beat — revenue $19.8B vs ~$17.8B consensus and non-GAAP EPS $8.55 vs ~$7.5 consensus (+56% / +156% YoY).
High reported quality with two honest caveats — a modest (and shrinking) GAAP-to-non-GAAP gap, and weak cash conversion during the build-out.
Four calls reviewed: Q2'25 (Aug 7 '25) · Q3'25 (Oct 30 '25) · Q4'25 (Feb 4 '26) · Q1'26 (Apr 30 '26).
Management's tone travelled from defensive-under-scrutiny (Q2'25, when ATTAIN-1 orforglipron data was judged 'a touch below Wegovy' and the CVS exclusion loomed) to an unambiguous victory lap by Q1'26 (five positive Phase-3s, four acquisitions, Koundeo launched, guidance raised twice). The consistent through-line: volume expansion offsets price give-back, and orals grow the market rather than cannibalize injectables.
Calls reviewed: Q2'25 (Aug 7 2025), Q3'25 (Oct 30 2025), Q4'25 (Feb 4 2026), Q1'26 (Apr 30 2026)
Key topics (emphasis on latest call)
Guidance evolution across calls
| Call | FY guide (rev $B) | Non-GAAP EPS | Perf. margin / price | Change vs prior |
|---|---|---|---|---|
| Q2'25 | FY25 $60-62 | FY25 $21.75-23 | 43-45.5%; US price −8% Q2 | Raised |
| Q3'25 | FY25 $63-63.5 | FY25 $23-23.70 | 45-46%; price 'as expected' | Raised (rev +>$2B) |
| Q4'25 | FY26 $80-83 | FY26 $33.50-35 | 46-47.5%; price drag low-to-mid teens | First FY26 guide (+25% mid) |
| Q1'26 | FY26 $82-85 | FY26 $35.50-37 | 47-48.5%; price low-to-mid teens | Raised +$2B & +$2 both ends |
FY2025 guidance was raised at every call; FY2026 was raised at the first opportunity (Q1'26). No explicit capex or FCF guidance was given on any call despite >$55B of cumulative manufacturing commitments — a real disclosure gap for a capital-intensity story.
Most important Q&A (latest call)
Q (Jeff Meacham, Citi): How do margins hold under a wide range of incretin price scenarios, given the manufacturing already built?
A (Ricks): 'Pretty much every time we reduce pricing, we see a pretty large expansion' — perhaps nonlinear; unit economics are driven by fixed/sunk costs so Lilly has latitude to trade price for volume.
Take: Frames price cuts as volume-accretive and margin-defensible — reassuring but self-serving; it is the core bull assumption.
Q (Chris Schott, JPMorgan): Learnings from the better-than-expected international Mounjaro ramp; impact of generic semaglutide entry?
A (Jonsson): Launched in 55+ countries, ~60% share in Korea; Mounjaro scripts ~10% HIGHER post-generic-sema in India — 'dual agonist trumps single agonist'; >53% ex-US share.
Take: Strong ex-US execution and a genuine competitive tell that efficacy is defending share against cheap generics.
Q (Asad Haider, Goldman): Confidence in the Koundeo launch curve and its contribution to the raised guide?
A (Yuffa / Montarce): 20,000+ patients, 8,000+ prescribers (1/3 new to oral GLP-1), 80% new-to-class; but the guide raise is 'driven mainly by Mounjaro/Zepbound — only 3 weeks of Koundeo data.'
Take: Encouraging leading indicators; management will not yet underwrite Koundeo revenue — sandbagging or genuine caution.
Q (James Shin, Deutsche Bank): With the Medicare bridge extending into 2027, what is the durable Part D path?
A (Ricks): 'Part D plans did not choose to opt in… maybe that's not so surprising — they operate on thin margins'; expects government to 'lean hard' into 2028 participation as evidence builds.
Take: Candid admission of a real 2027 access wrinkle, softened by bridge continuity and $50 out-of-pocket.
Q (Umer Raffat, Evercore): Zepbound economics: ~$580 implied net per Rx vs ~$450 cash-pay — what explains the delta?
A (Montarce): 'Your math is pretty spot on'; MFN and China prices stable QoQ, Lilly Direct stable since the December cut; the commercial book nets to ~$550.
Take: Unusually transparent — confirms the analyst's net-price bridge rather than deflecting.
Lilly earns exceptional returns on capital — the spread over its cost of capital is among the widest in large-cap pharma — though reported ROIC is understated while new plants sit in the capital base but not yet in revenue.
Pro-cyclical and reinvestment-first: Lilly is plowing incretin cash into the largest manufacturing build in its history and a broad BD/R&D program, accepting weak near-term FCF for durable capacity. Dividend growth is steady but the yield is immaterial; buybacks are not a needle-mover. The bet is that ~30% incremental ROIC beats returning cash — defensible while the growth runway is this long.
The balance sheet is sound: net debt ~$38B is ~1.3× EBITDA and falling as EBITDA compounds; debt is investment-grade (A-rated) and well-laddered; interest cover is >30×. The strain is capex, not leverage — Lilly is spending >$8B/yr (part of >$55B committed since 2020), which is why FCF lags earnings. This is fundable from operating cash and is a deliberate, high-return investment, not distress.
Forward/NTM multiples lead; TTM shown only for reference. Peers on consensus 2026E/2027E.
On forward earnings LLY trades at 33.1× 2026E and 27.2× 2027E non-GAAP EPS — an ~80% premium to the ~16-18× pharma-peer median. But the premium is fully explained by growth: LLY's ~22% 2026→27E EPS growth versus ~11% for the peer median puts its forward PEG (~1.5) right on the peer median. The more useful signal is versus its OWN history: LLY's NTM P/E of ~30× sits at just the 25th percentile of its 5-year daily range (median ~37×) — the multiple has de-rated even as the company got bigger and better, because hyper-growth is normalizing.
Company vs peers vs industry — forward (NTM) emphasis
| Company | P/E TTM | P/E 2026E | P/E 2027E | EPS gr. 26→27E | PEG (fwd) | EV/EBITDA 26E | P/S 26E |
|---|---|---|---|---|---|---|---|
| LLY | 51.4 | 33.1 | 27.2 | +21.7% | 1.5 | ~28×* | 13.4 |
| Novo Nordisk (NVO) | 14.0 | 15.2 | 15.2 | −0.1% | n/m | 9.2 | 5.0 |
| AstraZeneca (AZN) | 21.2 | 18.9 | 16.6 | +13.4% | 1.4 | 9.9 | 4.7 |
| Novartis (NVS) | 17.8 | 18.3 | 16.4 | +11.8% | 1.5 | 12.9 | 5.4 |
| AbbVie (ABBV) | 26.1 | 18.2 | 16.0 | +13.7% | 1.3 | ~23×* | 6.8 |
| Johnson & Johnson (JNJ) | 24.3 | 22.7 | 20.6 | +10.2% | 2.2 | 19.7 | 6.3 |
| Merck (MRK) | 14.4 | 25.0 | 13.3 | +87.6%† | n/m | 10.4 | 4.8 |
| Amgen (AMGN) | 17.5 | 16.6 | 15.9 | +4.6% | 3.6 | 14.3 | 5.3 |
| Pfizer (PFE) | 7.8 | 8.2 | 8.6 | −4.5% | n/m | 10.6 | 2.2 |
| Peer median | 17.7 | 18.3 | 16.0 | +11.0% | 1.5 | 11.7 | 5.2 |
*LLY & ABBV EV/EBITDA overstated — the consensus EBITDA feed reads below net income for both, so treat those two EV/EBITDA cells as unreliable (LLY's true forward EV/EBITDA is ~26-28× on our NI-built EBITDA). †MRK's 2026E EPS is depressed by one-time charges, distorting its 26→27E growth and PEG. NVO/PFE PEG n/m on flat/declining EPS. NVO/AZN/NVS normalized to USD per ADR/share.
Forward (NTM) multiples vs own daily history
Versus its own daily NTM history (5 yrs): P/E now ~30× = 25th percentile (median 37×, range 20-55×) — cheap vs itself. But NTM EV/EBITDA ~40× sits at the 78th percentile, because consensus EBITDA lags net income; the P/E percentile is the more reliable read. The de-rating from a 55× peak to 30× is appropriate as EPS growth cools from ~55% to ~20%.
Justified multiple vs expected EPS growth
| Sustained EPS growth | Justified P/E @ PEG 1.5 | Justified P/E @ PEG 1.8 | Read |
|---|---|---|---|
| 15% | 22.5× | 27× | If growth fades to mid-teens, ~22-27× → fair value ~$1,000-1,200 on 2027E |
| 20% | 30× | 36× | In line with our base; supports ~$1,300 on 2027E $44.56 |
| 25% | 37.5× | 45× | Bull: sustains the historical premium → $1,600+ |
A PEG of 1.5-1.8 is defensible for a franchise with ~30% ROIC and a decade-long runway; below ~1.3 the stock would look outright cheap, above ~2.0 outright rich.
Scenario price targets — 2026E & 2027E EPS × P/E
| Scenario | 2026E EPS | P/E 26E | Intrinsic (26E) | 2027E EPS | P/E 27E | Intrinsic (27E) | Comment |
|---|---|---|---|---|---|---|---|
| Bear | $34.0 | 20× | $680 | $40.0 | 20.5× | $820 | Pricing give-back outruns volume; de-rate toward peers |
| Base | $36.6 | 30× | $1,098 | $44.56 | 29× | $1,290 | Growth premium moderates but persists |
| Bull | $37.0 | 34× | $1,258 | $47.0 | 34× | $1,600 | Orforglipron re-rates back to historical premium |
| Consensus PT | — | — | — | — | — | $1,270 | Street median (33 buy / 9 hold / 3 sell) |
The 12-month base target (~$1,290) is ~29× our 2027E non-GAAP EPS — below LLY's own 5-yr median multiple, chosen to reflect decelerating growth and the unresolved pricing debate. It is derived from EPS × a growth-justified multiple, not from the current price.
The multiples read is a genuine two-hander: cheap versus its own history and PEG-fair versus peers, yet absolutely expensive (27-33× forward) with a de-rating trend as growth cools. That combination is exactly what 'fairly valued' looks like for a great business — it argues against chasing at all-time highs and for accumulating on de-ratings.
Second, independent valuation: a 10-yr FCF/DCF with WACC built two ways. This is our cross-check, not the primary target basis.
Because Lilly's FCF is still depressed by the capex/working-capital build, a DCF is assumption-heavy and terminal-value-heavy — but it is the honest test of whether 27-33× forward earnings can be justified on cash. It cannot, unless you accept a low (~7%) cost of capital.
REVERSE DCF: at $1,212, our Base 10-yr FCF path (rising $21B→$68B, terminal g 3%) only reconciles to the price at a ~7.3% discount rate. Put differently, at a normal fundamentals-based 8.8% WACC the Base path is worth just ~$857 — about 29% below spot — and even our Bull path is only ~$1,200. So the market is either applying a quality/low-beta ~7% cost of capital or underwriting better-than-Bull cash flows. The price embeds benign net pricing and flawless execution; it is not discounting the low-to-mid-teens price give-back as a lasting drag.
FCF scenarios — analyst, management guidance & proprietary ($M)
| FCF path ($M) | Basis | 2026 | 2028 | 2030 | 2032 | 2035 |
|---|---|---|---|---|---|---|
| Bear | Analyst-based — low (pricing pressure) | 16,000 | 26,000 | 33,000 | 38,000 | 44,000 |
| Base | Analyst-based — mid (consensus NI − capex/WC) | 21,000 | 36,000 | 47,000 | 57,000 | 68,000 |
| Bull | Analyst-based — high (elastic volume) | 25,000 | 43,000 | 58,000 | 72,000 | 90,000 |
| Management | Implied from FY26 rev/EPS guide − ~$9.5B capex (no explicit FCF guide) | 22,000 | 37,000 | 48,000 | 58,000 | 70,000 |
| Proprietary | Guidance + our capex-normalization & margin ramp | 22,000 | 38,000 | 50,000 | 61,000 | 74,000 |
Bear/Base/Bull are analyst-estimate-based (built off consensus net income less our capex & working-capital assumptions — Lilly gives no FCF guidance). Management is our read of guidance implications. Proprietary layers our own capex-normalization (capex easing from ~$9.5B toward ~8% of sales as the build completes) and margin ramp onto guidance. Full 10-yr paths (2026-2035) are used in the DCF.
WACC — consensus vs proprietary build
| Input | Consensus | Proprietary | Note |
|---|---|---|---|
| Risk-free (10Y UST) | 4.48% | 4.48% | public market data (treasury rates), 1-Jul-2026 |
| Beta | 0.55 (≈ stat 0.52) | 0.90 | Stat beta 0.52 implausibly low for a name with 40%+ drawdowns; fundamental large-cap-pharma beta ~0.85–0.95 |
| Equity risk premium | 4.46% | 5.00% | the data provider US ERP 4.46%; we use a standard 5.0% |
| Cost of equity | ~6.9% | ~9.0% | RF + β·ERP |
| Pre-tax cost of debt | ~5.0% | ~5.0% | LLY long bonds |
| After-tax cost of debt | ~4.1% | ~4.1% | ≈18% tax |
| Equity / debt weight | 96% / 4% | 96% / 4% | Mkt equity ~$1,086B vs debt ~$42.5B |
| WACC | ~6.9% | ~8.8% | Two dominant DCF levers: WACC & terminal g |
The gap between a ~6.9% 'consensus' WACC and our ~8.8% is almost entirely beta. LLY's trailing statistical beta (~0.52) is implausibly low for a stock that fell ~45% peak-to-trough in 2025 and then doubled — it reflects low index correlation, not low risk. A fundamental large-cap-pharma beta of ~0.9, plus a standard 5.0% ERP, yields a ~9% cost of equity and ~8.8% WACC. We prefer 8.8% as the more honest cost of capital; the two-table structure below shows exactly how much of LLY's valuation rests on accepting the lower rate.
DCF intrinsic value — proprietary WACC, iterated over terminal growth
| FCF scenario (WACC 8.8%, 10-yr) | g=2.5% | g=3.0% | g=3.5% | g=4.0% | TV % (g=3%) |
|---|---|---|---|---|---|
| Bear | $522 | $553 | $590 | $636 | 63% |
| Base | $808 | $857 | $915 | $984 | 64% |
| Bull | $1,058 | $1,123 | $1,199 | $1,292 | 66% |
| Management | $832 | $882 | $941 | $1,013 | 65% |
| Proprietary | $878 | $931 | $994 | $1,070 | 65% |
At our preferred 8.8% WACC (g=3%) the Base path is worth ~$857, the Bull path only ~$1,199 (≈ today's price) and the Bear ~$522 — i.e. even bullish cash flows barely justify spot on a normal cost of capital. Terminal value is ~60-65% of the total: appropriate for a company still compounding at year 10, but a reminder the value is back-end-loaded.
DCF intrinsic value — consensus WACC, iterated over terminal growth
| FCF scenario (WACC 6.9%, 10-yr) | g=2.5% | g=3.0% | g=3.5% | g=4.0% | TV % (g=3%) |
|---|---|---|---|---|---|
| Bear | $788 | $867 | $968 | $1,105 | 73% |
| Base | $1,219 | $1,340 | $1,497 | $1,708 | 74% |
| Bull | $1,600 | $1,760 | $1,968 | $2,247 | 76% |
| Management | $1,254 | $1,379 | $1,540 | $1,758 | 74% |
| Proprietary | $1,324 | $1,456 | $1,627 | $1,857 | 75% |
At the ~6.9% 'consensus' WACC the same paths jump ~55%: Base ~$1,340, Bull ~$1,968, Bear ~$788. Intrinsic value nearly doubles between the two WACCs — the single most important thing to understand about LLY's valuation: the bull case is largely a low-cost-of-capital case. We judge 8.8% the sounder rate, so we lean to the more conservative table and rate the shares HOLD.
Sensitivity — intrinsic value per share (WACC × terminal growth · BASE FCF path)
| g \ WACC | 7.5% | 8.5% | 9.5% | 10.5% |
|---|---|---|---|---|
| 2.5% | $1,055 | $856 | $714 | $608 |
| 3.0% | $1,143 | $911 | $751 | $634 |
| 3.5% | $1,253 | $977 | $794 | $663 |
| 4.0% | $1,394 | $1,058 | $844 | $697 |
Per-share value on the BASE FCF path across WACC (cols) x terminal-growth (rows); the cell nearest our base (~8.5% WACC, 3% g, ~$857) is highlighted. Note the whole grid sits below the ~$1,212 price except at the lowest WACCs — i.e. today's price effectively requires a sub-7.5% cost of capital on the base path. That is why we anchor the headline target on forward P/E and use the DCF to discipline it, not set it.
Two independent lenses, one verdict: on forward P/E LLY is PEG-fair and cheap vs its own history; on a fundamentals-WACC DCF it is ~29% rich (the price implies a ~7.3% cost of capital). Reconciled, the shares are close to fairly valued to slightly rich — a superb business at a full price. Base ~$1,290 (P/E-anchored), bracketed by a DCF that says the upside needs either a low cost of capital or the pricing debate to resolve benignly.
Sell-side constructive; insider signal is quietly bullish; the only overhang is the founders' endowment monetizing into strength.
Recent rating / estimate revisions
| Window | Signal | Detail |
|---|---|---|
| FY25→FY26 guide | Rising | Estimates revised up at every call; FY26 revenue guide raised $2B and EPS $2 at Q1'26 |
| Q1'26 print | Beat + raise | Revenue $19.8B (+56%) beat ~$17.8B consensus; non-GAAP EPS $8.55 vs ~$7 |
| Sentiment | Extended | At ATH after +94% off the Aug-25 low; RSI 67, ADX ~60 |
Consensus is firmly bullish — 33 of 45 ratings Buy, median PT $1,270 (~+5%), high $1,400. Estimate revisions have been persistently upward through the incretin ramp. The debate on the sell-side is no longer 'does it work' but 'how much net price gives back and what multiple a decelerating 20%+ grower deserves.'
Broadly and heavily owned by growth and quality-growth funds; a low-beta megacap core holding. No 13F red flags; the mechanical supply is the Lilly Endowment, not active managers exiting.
Better-than-normal mega-cap hygiene: de-minimis planned executive selling, zero discretionary C-suite liquidation near the highs, and — the informative event — a rare, well-timed cluster of open-market insider BUYING at the August-2025 low.
| Insider / holder | Recent activity | Read |
|---|---|---|
| Lilly Endowment (10% owner) | Sold ~$3.85B into strength | Charitable foundation monetizing; float supply, no info content |
| D. Ricks — CEO | Bought $1.05M @ $645 (Aug'25); 0 sold | Bought the low; no sales into the double — aligned |
| L. Montarce — CFO | Bought $0.49M @ $692 (Aug'25) | Open-market buy near the low |
| D. Skovronsky — CSO | Bought $0.63M @ $634 (Aug'25) | Best-priced buy — the scientist closest to the pipeline |
| I. Yuffa — EVP | Sold $4.6M (10b5-1) | Routine plan; June'26 clip doubled to 2,500 sh — minor watch |
| 4 directors | Bought $3.1M total (Aug'25) | Board conviction at the low |
Powerful uptrend, but extended into all-time highs after a +94% run.
Unambiguously bullish and strong. Price is ~16% above the 50-day and ~23% above the rising 200-day; a 6/26 breakaway gap (+7% on the Medicare-bridge and Jaypirca-EU news) carried LLY to a fresh all-time closing high of $1,229.93 (6/29). ADX(14) near 60 is a rare, very-strong-trend reading. The caution is that RSI(14) at ~67 (74 at the 6/29 peak) and a price at ATH after doubling leave little near-term margin of safety — momentum is powerful but stretched.
Key levels
| Level | Price | Role |
|---|---|---|
| Resistance | $1,230-1,238 | All-time high zone (6/29 close $1,230; intraday $1,238) |
| Resistance | $1,300 | Round-number target; no overhead supply above ATH |
| Support | $1,128 | Top of the 6/26 breakaway gap — first pullback zone |
| Support | $1,049 | 50-day MA + Jan-Feb '26 shelf |
| Support | $983 | 200-day MA on the Dec-'25 / Mar-'26 swing lows |
| Support | $852 | April-'26 correction low / Oct-'25 base |
RSI ~67 (overbought-leaning, not extreme); ADX ~60 confirms a dominant trend. The setup favors buying weakness, not breakouts, from here.
Our distribution is WIDER than the street's $1,135-1,400. We see more downside (a fundamentals-based 8.8% WACC puts the Base DCF ~25% below spot — the market is quietly discounting LLY at ~7%) AND more upside (orforglipron/obesity-TAM optionality can re-rate it above the $1,400 street high) than consensus allows. The single swing variable is net-price elasticity, which is unknowable until 2026-27 volume prints against the guided teens price give-back. That irreducible uncertainty, at all-time highs after a double, is why we rate a superb company HOLD rather than Buy.
Hover or tap any underlined term in the report for its definition; every term is collected here for printed or offline reading.
| 10b5-1 | A pre-scheduled insider trading plan; sales under it are routine and not a directional signal. |
| ADX | Average directional index — measures trend STRENGTH (not direction); >50 is a very strong trend. |
| breakaway gap | A price gap on heavy volume that launches a new move — often becomes support. |
| cash-pay | Patients paying out-of-pocket without insurance reimbursement — a large channel for obesity drugs. |
| CVOT | Cardiovascular outcomes trial — proves a drug reduces heart events, expanding its reimbursable use. |
| donanemab | Lilly's anti-amyloid Alzheimer's antibody (Kisunla); a prevention trial (TRAILBLAZER-ALZ 3) is a pipeline catalyst. |
| DTC | Direct-to-consumer — selling/marketing straight to patients (e.g. Lilly Direct), bypassing traditional channels. |
| dual agonist | A drug hitting two receptors (here GIP + GLP-1) — the source of tirzepatide's efficacy edge over single-agonist semaglutide. |
| formulary | A payer's list of covered drugs; exclusion from it can sharply cut a drug's volume. |
| GLP-1 | Glucagon-like peptide-1 — a gut hormone pathway; drugs that mimic it suppress appetite and lower blood sugar. |
| gross-to-net | The gap between list price and net price, driven by rebates to payers and PBMs. |
| incretin | A class of gut hormones (GLP-1, GIP) that stimulate insulin and reduce appetite — the basis of Lilly's and Novo's obesity/diabetes drugs. |
| IPR&D | In-process research & development — the cost of unfinished R&D acquired in deals, expensed immediately and excluded from non-GAAP earnings. |
| IRA | U.S. Inflation Reduction Act — lets Medicare negotiate certain drug prices, a policy pricing risk. |
| LOE | Loss of exclusivity — patent expiry that exposes a drug to generic competition (a Pfizer/Merck risk, not yet Lilly's). |
| MACE | Major adverse cardiovascular events — the composite endpoint (heart attack, stroke, CV death) in outcomes trials. |
| MFN | 'Most-favored-nation' pricing — proposals to peg U.S. prices to lower foreign prices; a major policy overhang. |
| NBRx | New-to-brand prescriptions — a leading share indicator. |
| net price | The realized price after rebates, discounts and coverage-gap costs — well below the list price. |
| non-GAAP EPS | Earnings per share adjusted to exclude items like acquired IPR&D and intangible amortization — Lilly's headline profit metric. |
| NRDL | China's National Reimbursement Drug List — inclusion boosts volume but at sharply lower negotiated prices. |
| orforglipron | Lilly's once-daily oral GLP-1 pill (brand Koundeo) — no food or timing restrictions. |
| Part D | The Medicare prescription-drug benefit, run by private plans — key to obesity-drug access for seniors. |
| PBM | Pharmacy benefit manager (e.g. CVS Caremark) — negotiates drug coverage and rebates, and can exclude drugs from formularies. |
| performance margin | Lilly's term for its non-GAAP operating margin — guided to 47-48.5% for 2026. |
| realized price | Revenue actually collected per unit after all rebates and discounts. |
| retatrutide | Lilly's investigational triple-agonist (GIP/GLP-1/glucagon) for obesity — potential next-gen successor. |
| RSI | Relative strength index — a 0-100 momentum gauge; >70 overbought, <30 oversold. |
| semaglutide | Novo Nordisk's GLP-1 molecule (Ozempic/Wegovy) — Lilly's main competitor. |
| tirzepatide | Lilly's dual GIP/GLP-1 molecule sold as Mounjaro (diabetes) and Zepbound (obesity). |
| TRx | Total prescriptions — a volume metric for a drug franchise. |