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SUMMARY
Parkev Tatevosian, CFA, evaluates Eli Lilly's current stock performance, highlighting its innovation in weight loss and leukemia treatments. He discusses the company's financial health, valuation, and the benefits of including Eli Lilly in a diversified investment portfolio.
MAIN POINTS
- Eli Lilly's stock has rebounded from early May lows, driven by strong growth in weight loss treatments.
- The company reported positive phase three results for Jaypirca in treating chronic lymphocytic leukemia.
- Eli Lilly is developing new weight loss treatments, such as retatrutide, showing significant efficacy in trials.
- Operating profit margins have risen sharply, and cash flow metrics remain strong, supporting long-term investor interest.
- Despite mixed performance in 2026, Eli Lilly's valuation remains reasonable compared to historical levels and market multiples.
- A discounted cash flow analysis suggests Eli Lilly is undervalued, and its low correlation with the macroeconomy offers portfolio diversification benefits.
DETAILED ANALYSIS
Eli Lilly has experienced a notable recovery in its stock price, climbing from $850 in early May to $1,115, yet its year-to-date gain is modest at around 4%. The company's reputation has been bolstered by its advancements in weight loss treatments, which are generating substantial revenue. However, the broader investment thesis centers on Eli Lilly's consistent ability to innovate and deliver new therapies, such as the recent positive phase three results for Jaypirca, which demonstrated a 45% reduction in disease progression or death for patients with relapsed or refractory chronic lymphocytic leukemia.
This underscores the company's ongoing commitment to addressing significant medical needs beyond its flagship products.
In addition to its existing portfolio, Eli Lilly is advancing new treatments like retatrutide, which has shown over 28% average weight loss in clinical trials and improvements in obesity-related health conditions. The company is also working to improve the tolerability and distribution of its therapies, aiming to reach a broader patient base. Financially, Eli Lilly's operating profit margins have expanded from 10% in 2017 to over 40% in the most recent year, and its cash flow from operations to sales ratio stands at a robust 25.8%.
These metrics reflect the company's efficiency in translating research and development investments into profitable products.
While some debate the ethics of high profit margins in healthcare, the analysis emphasizes that substantial returns are necessary to incentivize continued innovation. Regulatory changes that significantly limit profits could reduce investment in new drug development. From a valuation perspective, Eli Lilly trades at a forward price-to-earnings ratio of 30 and a forward price-to-operating cash flow of 29.4, which are considered reasonable given its growth and profitability.
The stock's low beta indicates limited correlation with broader economic cycles, making it an attractive diversifier for portfolios, especially those heavily weighted toward technology or AI stocks. Discounted cash flow analysis estimates Eli Lilly's fair value at $1,443, suggesting the current price remains attractive for long-term investors seeking both growth and diversification.
LINKS
- Special offer for The Motley Fool Stock Advisor.
- Parkev Tatevosian's book on a six-step investing framework.
- Discounted access to Fiscal.ai for investment research.
- Sign up for Webull and receive bonus shares.
- Subscribe to Parkev Tatevosian's free monthly Substack newsletter.