• If you are wondering whether Eli Lilly's near US$1,000 share price still offers value, you are not alone. The numbers give you plenty to think about.
• The stock recently closed at US$987.05, with returns of 16.0% over 7 days, 6.5% over 30 days, a year to date return of an 8.6% decline, and 28.0% over 1 year, plus a very large 3 year gain and a roughly 4x return over 5 years.
• Recent headlines have focused heavily on Eli Lilly's pipeline and high profile therapies, which have kept the stock firmly in the spotlight. That backdrop helps explain why short term price moves have been so sharp, as expectations and risk perceptions shift quickly around each news cycle.
• Against that backdrop, Eli Lilly currently holds a valuation score of 4 out of 6. The rest of this article will walk through what that means across different valuation methods, while hinting at a more complete way to think about value at the end.

Approach 1: Eli Lilly Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model estimates what a stock could be worth today by projecting future cash flows and discounting them back to a present value using a required return.

For Eli Lilly, the model uses a 2 Stage Free Cash Flow to Equity approach, based on cash flow projections rather than accounting earnings. The latest twelve month free cash flow is about $8.6b. Analyst inputs and extrapolated estimates point to free cash flow of $46.3b by 2030, with a series of annual projections between 2026 and 2035 that are discounted back into today’s dollars.

Adding up those discounted cash flows produces an estimated intrinsic value of about $1,402.82 per share. Compared with the recent share price of $987.05, the DCF output suggests Eli Lilly trades at a 29.6% discount to this estimate, which indicates the stock is undervalued according to this model.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Eli Lilly is undervalued by 29.6%. Track this in your watchlist or portfolio, or discover 44 more high quality undervalued stocks.

Approach 2: Eli Lilly Price vs Earnings

For profitable companies, the P/E ratio is a useful shorthand because it connects what you pay for each share with the earnings that support that price. It gives you a quick way to compare how the market is pricing similar streams of earnings across different stocks.

What counts as a "normal" or "fair" P/E depends on how fast earnings are expected to grow and how risky those earnings are perceived to be. Higher expected growth or lower perceived risk can justify a higher P/E, while slower growth or higher risk usually goes with a lower multiple.

Eli Lilly currently trades on a P/E of 34.82x. That sits above the Pharmaceuticals industry average of 16.69x and also above the peer group average of 23.30x. Simply Wall St’s Fair Ratio for Eli Lilly is 37.24x, which is a proprietary estimate of the P/E that might be reasonable given factors such as earnings growth, industry, profit margins, market cap and risk profile.

Because the Fair Ratio incorporates these company specific drivers rather than just comparing against broad industry or peer averages, it can give a more tailored view of value. With the Fair Ratio of 37.24x sitting above the current 34.82x, the P/E comparison points to Eli Lilly being undervalued on this metric.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your Eli Lilly Narrative

Earlier the article mentioned that there is an even better way to understand valuation, and that is where Narratives come in. Narratives give you a simple way to attach your story about Eli Lilly, including your fair value, revenue, earnings and margin assumptions, to a financial forecast that updates automatically when new news or earnings arrive. The tool then compares your Fair Value to the current share price so you can judge whether the stock looks attractive, fully priced or stretched based on your own view. All of this sits within Simply Wall St's Community page, where different investors can sit at opposite ends of the current Eli Lilly range. For example, one Narrative may use a fair value of about US$1,200 to US$1,500 with faster growth and higher margins, while another may use a fair value closer to US$650 with more cautious growth and pricing assumptions.

For Eli Lilly however we will make it really easy for you with previews of two leading Eli Lilly Narratives:

Together, these give you a clear sense of how different investors can look at the same stock, use the same data, and still reach very different conclusions about what feels like a reasonable price.

Fair value in this bullish Narrative: about US$1,189.18 per share.

Implied discount to this fair value at the recent US$987.05 share price: roughly 17.0% undervalued using ((1,189.18 - 987.05) / 1,189.18).

Revenue growth assumption: 20% a year.

• Sees Eli Lilly’s GLP 1 franchise as the central driver, with Mounjaro and Zepbound supported by long patent protection and a large potential patient pool in the U.S. alone.
• Emphasizes production capacity and insurance coverage as the main swing factors, with supply catching up to demand over time and helping units shipped.
• Accepts a relatively high current P/E as a reflection of projected growth, using a 9% discount rate to arrive at an estimated fair value around US$1,200.

Fair value in this more cautious Narrative: about US$883.99 per share.

Implied premium to this fair value at the recent US$987.05 share price: roughly 11.7% overvalued using ((987.05 - 883.99) / 883.99).

Revenue growth assumption: about 7.66% a year.

• Focuses on potential U.S. drug pricing reforms, pricing parity with Europe, and value based reimbursement as factors that could limit future pricing power for obesity and diabetes drugs.
• Highlights reliance on a handful of key therapies and the risk from competition, patent expiry, higher R&D demands, and tighter scrutiny of drug costs and safety.
• Anchors on a fair value of US$650 in the bearish analyst cohort and a broader analyst range up to US$1,190, using a discount rate of about 6.98% and a future P/E closer to the wider Pharmaceuticals industry.

Taken together, these Narratives show you how sensitive any fair value is to views on pricing, regulation, competition, and long term demand for Eli Lilly’s core treatments. The key step for you is to decide which assumptions feel closer to your own view and then see how that compares with the current share price.

If you want to see the full range of community Narratives, the detailed forecasts behind them, and how they update when new information comes through, See what the community is saying about Eli Lilly.

Do you think there's more to the story for Eli Lilly? Head over to our Community to see what others are saying!

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.