Eli Lilly (LLY) Could Be 20% Below Fair Value After Its $3.8b Deal
Eli Lilly (LLY) has agreed to acquire psychedelic drug developer AtaiBeckley for up to US$3.8b, in a mental health focused deal that adds late stage depression therapies and expands the company’s neuroscience pipeline.
See our latest analysis for Eli Lilly.
Eli Lilly’s 27.19% 90 day share price return and 6.04% 1 month share price return suggest momentum has been building, while a 53.87% 1 year total shareholder return points to strong longer term performance as acquisitions and pipeline news keep the stock in focus.
If the AtaiBeckley deal has you looking more closely at mental health and neurology, it could be worth scanning other neuroscience and healthcare AI opportunities using the 39 healthcare AI stocks.
Eli Lilly is paying up to US$3.8b to step into psychedelics just as the stock sits near recent highs. Should you accept today’s price as fair, or wait and see what the valuation work suggests next?
Most Popular Narrative: 20.2% Undervalued
According to the most followed narrative on Eli Lilly, a fair value of $1,477.03 sits well above the last close at $1,179.11, which frames this acquisition against a story of already strong growth expectations.
You are buying a business already growing at 25% annually, with its most important new drug not yet approved and not yet reflected in any revenue number, at a price that a conservative model says is 27 to 32% below fair value. The pricing headwinds are real, but they are happening to a company with manufacturing scale, regulatory depth, and a next-generation compound that has already beaten the highest analyst expectations in Phase 3. That is the story. Everything after this is just watching the trial readouts come in.
Want to see how this narrative gets to that higher fair value for Eli Lilly? It relies on aggressive earnings expansion, robust margins, and a premium future earnings multiple included in the model assumptions.
Result: Fair Value of $1,477.03 (UNDERVALUED)
Have a read of the narrative in full and understand what's behind the forecasts.
However, this Eli Lilly story still hinges on drug pricing and obesity market size assumptions not breaking, and on retatrutide clearing its remaining safety and efficacy hurdles.
Find out about the key risks to this Eli Lilly narrative.
Another View: Eli Lilly Looks Expensive on Earnings
The fair value story for Eli Lilly using investor narratives and cash flow assumptions points to a 20.2% discount, but the earnings multiple tells a tighter story. At a P/E of 41.6x, the stock trades well above the US Pharmaceuticals industry on 15x and peers on 25.1x, and even above its own 39.2x fair ratio. That gap suggests investors are already paying a premium, so the question is how much room is really left if expectations slip?
See what the numbers say about this price — find out in our valuation breakdown.
Next Steps
With both bullish and cautious signals on display for Eli Lilly, it makes sense to move quickly, review the data in detail, and weigh the 3 key rewards and 2 important warning signs
Looking for more investment ideas beyond Eli Lilly?
If Eli Lilly has sharpened your focus on quality opportunities, do not stop here. Use the Simply Wall Street Screener to uncover more stocks that fit your goals.
- Target stability and income by checking out companies described as 8 dividend fortresses that may suit investors who want regular cash returns.
- Hunt for potential mispricing by scanning the screener containing 20 high quality undiscovered gems that might not yet be on most investors’ radars.
- Prioritise resilience by reviewing the 84 resilient stocks with low risk scores that could help balance out higher volatility positions in your portfolio.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com