[1] Market Valuation: At P/EBIT of 43.8, LLY stock is more expensive per dollar of operating profit compared to 29.6 for ABT
Market ValuationEli Lilly and CompanyAbbott Laboratoriesvs Abbott LaboratoriesAs of 11/6/2021 Price To Sales Ratio (P/S)9.55.5More ExpensivePrice To OpInc Ratio (P/EBIT)43.829.6More ExpensivePrice To Earnings Ratio (PE)41.834.5More Expensive
[2] Growth & Profits: Considering the valuation, the market appears to be rewarding LLY's higher expected profit growth - LLY has demonstrated relatively lower revenue growth: -1.0% last Q (qoq), 22.6% last Q (yoy), 16.5% LTM, and 7.1% annually in last 3 FY - In comparison, ABT has grown at -2.2%, 39.5%, 28.0%, and 8.1% respectively, during the same periods - However, LLY has shown greater profit generation promise: LLY, 21% average margin, -0.3% average margin expansion, and 26.5% cash flow - The corresponding values for ABT stand at 15.2%, -0.01%, and 26.4%Note: Average margin is based on average of last Q, LTM, and last 3 FY, while margin change is based on last Q margin vs 3Y average
Growth & ProfitEli Lilly and CompanyAbbott Laboratoriesvs Abbott Laboratories As of 11/6/2021 Revenue GrowthLast Q Growth (QoQ)-1%-2.2%Growing FasterLast Q Growth (YoY)22.6%39.5%Growing SlowerLTM Growth16.5%28%Growing SlowerLast 3 Fiscal Year CAGR7.1%8.1%Growing Slower ProfitabilityLast Q OpInc Margin20.4%13.6%More ProfitableLTM OpInc Margin21.6%18.5%More ProfitableLast 3 Fiscal Year Average20.8%13.6%More ProfitableLTM FCF Margin26.5%26.4%Higher Cash Flow %
[3] Financial Risk: Then, is the market ignoring risk to LLY? Unlikely as the company does not appear to be at higher risk vs ABT - LLY has a better debt position, with debt as % of equity of 6.9% vs 8.4% for ABT - ABT has more cash cushion, with cash as % of assets of 12.2% vs 6.8% for LLY
Financial RiskEli Lilly and CompanyAbbott Laboratoriesvs Abbott Laboratories As of 11/6/2021Debt as % of Equity6.9%8.4%Similar Debt LoadCash as % of Assets6.8%12.2%Worse Cash Position
[4] Market Returns: LLY is expensive but has higher profit growth and no extra risk; Appears to be a reasonable choice but what about market returns? - LLY has higher average annualized return of 38.8% vs 19.8% for ABT based on key market periods - These key market periods include, year-to-date, pre-covid to now, and 1, 2, and 3 years prior to covid
Precovid date is taken as end of Feb 2020
Notes:
[1] Q = quarter, LTM = last twelve months, FY = fiscal years, yoy = year-on-year, qoq = quarter-on-quarter
[2] Revenue growth decision is made by giving more weightage to long-term revenue growth (3-year average) and lesser weightage to quarterly growths
[3] Margin mentioned is average of last Q, LTM, and last 3 FY; margin increase is average of increase in last Q vs LTM and increase in last Q vs 3-FY average