Eli Lilly (LLY)

Global pharmaceutical company Eli Lilly (NYSE:LLY) reported Q1 CY2025 results topping the market’s revenue expectations, with sales up 45.2% year on year to $12.73 billion. The company expects the full year’s revenue to be around $59.5 billion, close to analysts’ estimates. Its non-GAAP profit of $3.34 per share was 3.4% below analysts’ consensus estimates.

Company Overview

Founded in 1876 by a Civil War veteran and pharmacist frustrated with the poor quality of medicines, Eli Lilly (NYSE:LLY) discovers, develops, and manufactures pharmaceutical products for conditions including diabetes, obesity, cancer, immunological disorders, and neurological diseases.

Looking ahead, the branded pharmaceutical industry is positioned for tailwinds from advancements in precision medicine, increasing adoption of AI to enhance drug development efficiency, and growing global demand for treatments addressing chronic and rare diseases. However, headwinds include heightened regulatory scrutiny, pricing pressures from governments and insurers, and the looming patent cliffs for key blockbuster drugs. Patent cliffs bring about competition from generics, forcing branded pharmaceutical companies back to the drawing board to find the next big thing.

Eli Lilly's main competitors include other large pharmaceutical companies such as Novo Nordisk (NYSE:NVO), particularly in the diabetes and obesity markets, Pfizer (NYSE:PFE), Merck (NYSE:MRK), Johnson & Johnson (NYSE:JNJ), AbbVie (NYSE:ABBV), and Bristol Myers Squibb (NYSE:BMY).

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With $49 billion in revenue over the past 12 months, Eli Lilly boasts impressive economies of scale. It may not be as large as heavyweights such as UnitedHealth Group and The Cigna Group from a topline perspective, but its heft is still an important advantage in a healthcare industry that is heavily regulated, complex, and resource-intensive.

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Eli Lilly grew its sales at a solid 16.2% compounded annual growth rate. Its growth surpassed the average healthcare company and shows its offerings resonate with customers, a great starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within healthcare, a half-decade historical view may miss recent innovations or disruptive industry trends. Eli Lilly’s annualized revenue growth of 33% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated.

Eli Lilly also breaks out the revenue for its most important segments, Diabetes and Oncology, which are 72.3% and 15.3% of revenue. Over the last two years, Eli Lilly’s Diabetes revenue averaged 47.9% year-on-year growth while its Oncology revenue averaged 25.6% growth.

This quarter, Eli Lilly reported magnificent year-on-year revenue growth of 45.2%, and its $12.73 billion of revenue beat Wall Street’s estimates by 0.9%.

Looking ahead, sell-side analysts expect revenue to grow 26.7% over the next 12 months, a deceleration versus the last two years. Still, this projection is eye-popping given its scale and implies the market is forecasting success for its products and services.

Adjusted operating margin is one of the best measures of profitability because it tells us how much money a company takes home after subtracting all core expenses, like marketing and R&D. It also removes various one-time costs to paint a better picture of normalized profits.

Eli Lilly has been an efficient company over the last five years. It was one of the more profitable businesses in the healthcare sector, boasting an average adjusted operating margin of 27.6%.

Looking at the trend in its profitability, Eli Lilly’s adjusted operating margin rose by 3.9 percentage points over the last five years, as its sales growth gave it operating leverage. This performance was mostly driven by its recent improvements as the company’s margin has increased by 6.5 percentage points on a two-year basis. These data points are very encouraging and shows momentum is on its side.

This quarter, Eli Lilly generated an adjusted operating margin profit margin of 30.3%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Eli Lilly’s astounding 17.6% annual EPS growth over the last five years aligns with its revenue performance. This tells us its incremental sales were profitable.

In Q1, Eli Lilly reported EPS at $3.34, up from $2.58 in the same quarter last year. Despite growing year on year, this print missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects Eli Lilly’s full-year EPS of $13.76 to grow 84.7%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Eli Lilly has shown impressive cash profitability, giving it the option to reinvest or return capital to investors. The company’s free cash flow margin averaged 11.6% over the last five years, better than the broader healthcare sector.

Taking a step back, we can see that Eli Lilly’s margin dropped by 13.8 percentage points during that time. It may have ticked higher more recently, but shareholders are likely hoping for its margin to at least revert to its historical level. If the longer-term trend returns, it could signal increasing investment needs and capital intensity.

Eli Lilly’s free cash flow clocked in at $156.1 million in Q1, equivalent to a 1.2% margin. This cash profitability was in line with the comparable period last year but below its five-year average. We wouldn’t put too much weight on it because investment needs can be seasonal, causing short-term swings. Long-term trends trump temporary fluctuations.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Eli Lilly’s five-year average ROIC was 25.8%, placing it among the best healthcare companies. This illustrates its management team’s ability to invest in highly profitable ventures and produce tangible results for shareholders.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Eli Lilly’s ROIC has decreased over the last few years. Only time will tell if its new bets can bear fruit and potentially reverse the trend.

Eli Lilly reported $3.22 billion of cash and $38.52 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $17.23 billion of EBITDA over the last 12 months, we view Eli Lilly’s 2.0× net-debt-to-EBITDA ratio as safe. We also see its $667 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was good to see Eli Lilly narrowly top analysts’ revenue expectations this quarter. On the other hand, its full-year EPS guidance missed and its EPS fell short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock remained flat at $780.67 immediately after reporting.

Updated: July 8, 2025 at 12:14 AM EDT

Before making an investment decision, investors should account for Eli Lilly’s business fundamentals and valuation in addition to what happened in the latest quarter.

There are multiple reasons why we think Eli Lilly is an elite healthcare company. To begin with, its revenue growth was solid over the last five years, and its growth over the next 12 months is expected to accelerate. And while its cash profitability fell over the last five years, its astounding EPS growth over the last five years shows its profits are trickling down to shareholders. On top of that, Eli Lilly’s stellar ROIC suggests it has been a well-run company historically.

Eli Lilly’s P/E ratio based on the next 12 months is 30.4x. Analyzing the healthcare landscape today, Eli Lilly’s positive attributes shine bright. We think it’s one of the best businesses in our coverage and like the stock at this price.

Wall Street analysts have a consensus one-year price target of $951.98 on the company (compared to the current share price of $772.91), implying they see 23.2% upside in buying Eli Lilly in the short term.