Examining how Eli Lilly and Company (NYSE:LLY) is performing as a company requires looking at more than just a years’ earnings. Below, I will run you through a simple sense check to build perspective on how Eli Lilly is doing by comparing its most recent earnings with its historical trend, in addition to the performance of its pharmaceuticals industry peers. View our latest analysis for Eli Lilly
Did LLY perform worse than its track record and industry?
I prefer to use data from the most recent 12 months, which either annualizes the most recent 6-month earnings update, or in some cases, the most recent annual report is already the latest available financial data. This method enables me to examine various companies on a more comparable basis, using the most relevant data points. For Eli Lilly, the latest earnings is $2,224.6M, which, relative to last year’s level, has fallen by -8.98%. Since these figures may be relatively myopic, I have estimated an annualized five-year value for LLY’s net income, which stands at $3,478.7M. This doesn’t look much better, since earnings seem to have consistently been deteriorating over time.
What could be happening here? Well, let’s take a look at what’s transpiring with margins and if the whole industry is feeling the heat. Although revenue growth in the last couple of years, has been negative, earnings growth has been falling by even more, implying that Eli Lilly has been increasing its expenses. This harms margins and earnings, and is not a sustainable practice. Inspecting growth from a sector-level, the US pharmaceuticals industry has been growing, albeit, at a subdued single-digit rate of 6.41% in the prior twelve months, and a substantial 11.29% over the past five years. This suggests that any uplift the industry is deriving benefit from, Eli Lilly has not been able to reap as much as its average peer.
What does this mean?
Though Eli Lilly’s past data is helpful, it is only one aspect of my investment thesis. In some cases, companies that endure a prolonged period of diminishing earnings are going through some sort of reinvestment phase with the aim of keeping up with the latest industry disruption and expansion. I suggest you continue to research Eli Lilly to get a more holistic view of the stock by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for LLY’s future growth? Take a look at our free research report of analyst consensus for LLY’s outlook.
2. Financial Health: Is LLY’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. This may not be consistent with full year annual report figures.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.