This article originally appeared on The DIV-Net July 7, 2008.Linked here is a PDF copy of my analysis of Eli Lilly and Co. (LLY) (alt.1, alt.2). Below are some highlights from the above linked analysis:
Company Description: Eli Lilly and Company discovers, develops, manufactures and sells prescription drugs that offers a wide range of treatments for neurological disorders, diabetes, cancer, and other conditions. The company also sells animal health products.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
LLY is trading at a discount to 1.) and 3.) above. If I exclude the high and low valuation, and average the remaining two valuations, LLY is trading at a 9.3% premium. A Star is deducted since LLY is trading at a premium in excess of 5%.
Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description:
LLY earned two Stars in this section for 3.) and 4.) above. It has paid a cash dividend to shareholders every year since 1885 and has increased its quarterly cash dividend payments for 40 consecutive years. The 1-Yr. > 5-Yr Growth metric indicates that dividend growth has been accelerating.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
LLY earned one Star in this section for 1.) above, and was very close to earning a Star for 2.) above. A company earns a Star for Years to >MMA if it less than 5 years and LLY is at 5 years.
Other: LLY is a member of the S&P 500, is an Achiever and an Aristocrat. Drug companies are facing challenges to their branded patents, drug development and regulatory issues. However, LLY's drug portfolio has limited near-term patent expiration exposure and it has a healthy pipeline in place.
Conclusion: LLY lost a Star in the Fair Value section, earned two Stars in the Dividend Analytical Data section and earned one Stars in the Dividend Income vs. MMA section for a net total of 2 Star. This quantitatively rates LLY as a 2 Star-Weak stock.
LLY is a good example of why you don't stop with a mechanical quantitative analysis. The NPV MMA Diff. is one of the main metrics I look at and at $4,355 it exceeds the $3,000 I look for in a company that is both an Achiever and an Aristocrat. In the case of LLY, the rating is purely a valuation issue and even there it is extraordinarily close. If LLY had closed at $45.10, instead of the $46.98 used in this valuation, this $1.88 (4%) decline would have made LLY a 4-Star Buy.
Using my D4L-PreScreen.xls model, I determined the dividend growth rate could drop more than a full point to 5.7% and still generate the $3,000 NPV of MMA Differential that I look for from a company that is both an Achiever and an Aristocrat. I have added LLY to my watch list.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I do not own shares of LLY (0.0% of my Income Portfolio).
What are your thoughts on LLY?
Recent Stock Analyses:
Stock Analysis: Eli Lilly and Co. (LLY)
Posted by D4L | Monday, July 14, 2008 | analysis, DIV-Net | 3 comments »________________________________________________________________
Subscribe to:
Post Comments (Atom)
~
Popular Posts Last 30 Days
-
As a relatively new blogger, the one thing that has stood out in my mind is the number of Canadian bloggers in the areas that I am most inte...
-
GameStop (NYSE:GME) lost about 40% of its market value over the past three years, as rising digital downloads and declining mall traffic thr...
-
In a capitalistic society, opportunities to generate (mostly) passive income are all around us. Dividend growth investing is one of the most...
-
These elite income producers have rallied this year. Their brilliance at producing passive income seems to have caught the market's eye ...
-
Investors buy dividend stocks for a few reasons. For one, they provide income via dividends that act as a bonus on top of capital appreciati...
-
Buying dividend stocks can be tricky. Oftentimes, stocks that pay exorbitantly high dividends have underlying financial problems, and their ...
-
If you are looking for reliable dividends, these three Dividend Kings should be right up your alley. Dividends are paid at the discretion of...
-
While optimism in the broader market remains robust – particularly for hyped-up sectors like technology – investors may still want to consid...
-
A strong dividend investing strategy may be to focus on high-quality names that score well on several dividend-related metrics. In other wor...
-
As investors seek reliable income streams, a diverse portfolio of dividend-paying stocks could potentially generate over $3,000 a month. Thi...
Great analysis D4L,
I unfortunately don't own the company anymore since restructuring my RSP earlier this year, but the company still remains on my watchlist and one that I regularly follow.
How would one purchase stock in Eli Lilly and Company and what is the minimum amount needed?
My address is aljoy2001@yahoo.com
Anon: First you would have to open a brokerage account with someone like Zecco, Scottrade, or another. They will likely have a minimum to open an account. After that, you could buy one share if you like. However, if you had to pay a commission, it would be steep on a single share.
Best Wishes,
D4L