Eli Lilly and Company
LLY remains one of the best growth franchises in global pharma, but at $1,183.46 the stock already discounts much of the FY26-FY27 incretin earnings ramp while margin volatility and a still-stretched 39.59x P/E cap near-term upside.
Lilly owns the best large-cap growth story in pharma, but the stock is no longer early. The key fact is not that the company is growing fast, that is obvious. The key fact is that the market already prices in a lot of that growth with a 39.59x P/E, 13.26x P/S, and a market cap of $1.11T, even after the stock pulled back to 8.4% below its high. That makes this a business investors can admire more easily than buy aggressively at this level.
The case still works fundamentally. FY2025 revenue reached $65.2B, up 25.4%, and FY2025 EPS hit $23.07, up 75.2%. In Q2, Lilly delivered 48% YoY revenue growth and non-GAAP EPS of $8.38 despite a $3.03 acquired IPR&D charge, then raised FY26 guidance to $85B-$87B of revenue and $35.50-$36.50 of non-GAAP EPS. That step-up is why the stock has support even in a higher-rate tape. The company also has real forward optionality with Foundayo gaining access across all three major PBMs, Medicare obesity coverage expanding by 35%, and Retatrutide moving toward a Q1 2027 U.S. submission.
The hold rating comes from what the market may be mispricing in the other direction: the assumption that volume growth cleanly converts to expanding value. The latest data say otherwise. FY2025 operating margin fell to 36.6% from 37.8%, and Q2 EBITDA margin dropped to 40.2%, down 870 bps from Q1. U.S. price was down 3% in Q2, and down 9% ex-adjustments, which matters because obesity reimbursement growth tends to bring tougher payer economics. In other words, Lilly is scaling into a much larger market, but not every incremental dollar is arriving at the same margin quality investors got used to.
What the case depends on from here is simple. First, Lilly must keep proving that demand breadth and access gains can outrun price pressure. Second, margins need to stabilize as manufacturing ramps and launch noise fades. Third, the pipeline, especially Retatrutide, must preserve Lilly’s category leadership three to five years out. Those are plausible outcomes, and management has earned credibility. They are just not underpriced at $1,183.46.
Incretin demand, Foundayo launch traction, and Retatrutide confidence push FY27 earnings power above current expectations and sustain a premium growth multiple.
Lilly delivers raised FY26 guidance, but upside is offset by already-rich valuation, wide peer-multiple dispersion, and a higher-rate backdrop.
GLP-1 pricing pressure deepens, 2H26 slows more than guided, and margin compression persists, forcing a sharper de-rating toward the lower end of large-cap pharma growth multiples.
Quant call (HOLD) diverges from analyst consensus (Strong Buy: 14 buy / 0 hold / 1 sell) — resolve explicitly.
In the short run, the market is a voting machine, but in the long run, it is a weighing machine.
FY26 guidance of $35.50-$36.50 in non-GAAP EPS means the stock trades at roughly low-30s times forward earnings, less demanding than the trailing 39.59x, but still expensive for a large-cap pharma name in a 5.18% 10-year rate world. The moat looks stronger now than it did two years ago because Lilly has paired brand and clinical leadership with supply scale, payer access, and manufacturing build-out, and that matters more over the next 3-5 years as obesity treatment broadens into comorbidities and global markets. AI is an enabler, not the thesis, helping trial design, demand targeting, and manufacturing efficiency, while the real secular drivers are obesity/T2D penetration, broader reimbursement, and follow-on assets like Retatrutide. Regulation is the main counterforce, because broader obesity coverage expands TAM but also invites sharper payer management and net-price pressure.
- FY26 revenue guidance of $85B-$87B after a raise, supported by sustained incretin demand and Medicare obesity coverage expansion of 35% from July 1
- Non-GAAP EPS guidance of $35.50-$36.50 versus FY2025 EPS of $23.07, implying major forward earnings power despite current valuation
- Mounjaro + Zepbound revenue of $14.9B in Q2, up $6.3B YoY, offset by Q2 EBITDA margin of 40.2%, down 870 bps sequentially
- Eight straight beats in seven of the last eight quarters, including +30.9%, +22.7%, and +23.4% EPS beats, show unusual operating momentum and conservative guidance discipline after the lone -19.7% miss in 2024 Q3.
- The incretin engine is still expanding: Mounjaro + Zepbound generated $14.9B in Q2, while management said Foundayo volumes were "almost doubling the volume that we had just a month ago."
- Management raised FY26 outlook to $85B-$87B revenue, 49%-50.5% non-GAAP performance margin, and $35.50-$36.50 EPS, with no expected supply gating for ex-U.S. Foundayo launches.
- Pipeline and access broaden the story beyond current GLP-1 demand, with Retatrutide U.S. submission in Q1 2027, Foundayo global rollout across major markets in 2027, and obesity coverage expanded by 35% under the Medicare GLP-1 Bridge.
- Valuation still leaves little room for execution noise: P/E 39.59x versus peer average 35.9x, P/S 13.26x versus 4.9x peers, and the quant base value is only $1,163.56, below spot.
- Profitability is not moving in a straight line. FY2025 operating margin slipped to 36.6% from 37.8%, and Q2 EBITDA margin of 40.2% was down 870 bps versus Q1 and 800 bps versus prior-year Q2.
- Pricing is a real offset to volume. U.S. price was down 3% in Q2, and management said ex-adjustments price was down 9%, which matters in a category that is attracting payer scrutiny as volumes scale.
- Balance sheet flexibility is adequate, not pristine for a trillion-dollar company. Debt/Equity is 1.62, Debt/EBITDA is 1.73, and Financial Health is 42/100, while capex and capacity spending remain elevated.
| Metric | Value | Context |
|---|---|---|
| Current price | $1183.46 | Reference price for rating and scenario setup |
| Quant price target | $1163.56 | -1.7% vs current, Low confidence, basis: earnings_growth_blend |
| FY2025 revenue | $65.2B | +25.4% YoY |
| FY2025 EPS | $23.07 | +75.2% YoY |
| FY2025 operating margin | 36.6% | Down from 37.8% in prior FY |
| FY26 revenue guidance | $85B-$87B | Raised on 2026 Q2 call |
| FY26 non-GAAP EPS guidance | $35.50-$36.50 | Raised on 2026 Q2 call |
| Q2 EBITDA margin | 40.2% | Down 870 bps vs Q1 and down 800 bps vs prior-year Q2 |
| Valuation | P/E 39.59x | P/S 13.26x | P/B 31.17x | Premium to peers, with peer avg P/E 35.9x and peer avg P/S 4.9x |
| Leverage and cash flow | Debt/EBITDA 1.73x | Total debt $54.9B | FCF $7.8B | Leverage is manageable, but capex remains elevated |
| Price action | -8.4% vs 52-week high | +10.6% vs 200-day average | Not washed out, still trading above trend |
The biggest risk is paying a premium 39.59x P/E and 13.26x P/S for a story that still has visible margin compression, with Q2 EBITDA margin down 870 bps sequentially.
The next catalyst is Q3 earnings on October 29, 2026, where investors need confirmation that FY26 guidance can hold despite the company’s implied slower 2H cadence and recent margin pressure.
Ownership is crowded but stable, with the top three institutions holding 69.7% and insiders owning 9.9%. Short interest is just 0.89% of shares, or 7.52M shares, with 2.7 days-to-cover, so there is little fuel for a squeeze and little evidence of strong bearish positioning. Options positioning is mildly supportive, with positive gamma and a zero-gamma level at $1,166.67, close to spot, which can damp volatility rather than amplify upside.
Core growth engine, up $6.3B YoY, driven by obesity and diabetes demand plus expanding access.
Still the key profit pool, with July 1 Medicare GLP-1 Bridge expanding obesity coverage by 35% but U.S. pricing down 3% in Q2.
Important next leg of growth as management said there will be "no gating of launches either" for Foundayo ex-U.S.
Recent FDA approvals for pediatric Olumiant and once-weekly basal insulin add breadth, but the equity story remains dominated by incretins.
Lilly delivered a strong Q2 and raised FY26 guidance on sustained incretin momentum.
Management has earned credibility since the 2024 Q3 call. Back then, Lilly guided FY24 revenue to $45.4B-$46.0B, said demand generation would accelerate as supply improved, and expected strong 2025 growth as newly launched medicines scaled. Since then, FY2025 revenue reached $65.2B, up 25.4%, and FY2025 EPS reached $23.07, up 75.2%, while FY26 guidance has now been raised to $85B-$87B revenue and $35.50-$36.50 non-GAAP EPS. The quarterly record also supports execution quality: after the -19.7% EPS miss in 2024-10-30, Lilly posted seven straight beats, including +23.4%, +22.7%, and +30.9%. The main miss versus the ideal path is margin smoothness, because Q2 EBITDA margin was 40.2%, down 870 bps from Q1, but the direction of the strategy has not changed materially and operations have mostly delivered what management promised on supply, demand activation, and product timing.
Q2 continued Lilly's strong momentum. We raised our full-year annual guidance.
We now expect full-year revenue to be between $85 billion and $87 billion.
We now expect our non-GAAP performance margin to be between 49% and 50.5%... We now expect non-GAAP earnings per share of $35.50 to $36.50.
The last week of July, we're seeing an inflection. So the -- we're almost doubling the volume that we had just a month ago.
I think we are extremely well positioned here in terms of supply. So there will be no gating of launches either.
Lilly’s moat is built on three assets that are hard to copy at once: leading metabolic brands, a deep follow-on pipeline, and scaled manufacturing in a category constrained by supply and access. That moat is more durable today because management has turned supply from a bottleneck into an advantage, while securing PBM access and broadening reimbursement. The main durability question over 3-5 years is pricing, not demand, because the category should keep growing even as net price comes under pressure.
Capital allocation is aggressive but mostly rational for a company still in land-grab mode. FY cash deployment included $2.9B capex, $1.6B buybacks, and $1.5B dividends, while management continues to fund manufacturing capacity and selective external innovation such as Morphic. With FCF of $7.8B and leverage at 1.73x debt/EBITDA, the balance between growth reinvestment and shareholder return looks acceptable, though not especially cheap or cash-rich relative to market cap.
Rated HOLD, Low conviction. Lilly remains one of the highest-quality growth franchises in the market, and the medium-term business outlook still looks excellent. The problem is that the stock price already reflects much of that excellence, while margins and pricing trends have turned less clean at the same time. A more attractive entry would require either a better price or fresh evidence that FY27 earnings power is moving above the current trajectory without further margin erosion. A move toward BUY would need a cheaper setup or another clear step-up in forward earnings beyond the current $35.50-$36.50 FY26 guide.
≣ Full research note tap to expand
Executive Summary
HOLD, Low conviction. LLY rates a HOLD, Low conviction. The business is executing at a very high level, with FY2025 revenue up 25.4% to $65.2B, FY2025 EPS up 75.2% to $23.07, and FY26 guidance raised to $85B-$87B of revenue and $35.50-$36.50 of non-GAAP EPS. The issue is price: the quant engine’s $1,163.56 target implies -1.7% from the current $1,183.46, and with peer dispersion wide, P/S at 13.26x versus 4.9x peers, and the stock only 8.4% below its high, upside looks limited unless Lilly beats an already elevated forward setup again.
Investment Thesis
Lilly owns the best large-cap growth story in pharma, but the stock is no longer early. The key fact is not that the company is growing fast, that is obvious. The key fact is that the market already prices in a lot of that growth with a 39.59x P/E, 13.26x P/S, and a market cap of $1.11T, even after the stock pulled back to 8.4% below its high. That makes this a business investors can admire more easily than buy aggressively at this level.
The case still works fundamentally. FY2025 revenue reached $65.2B, up 25.4%, and FY2025 EPS hit $23.07, up 75.2%. In Q2, Lilly delivered 48% YoY revenue growth and non-GAAP EPS of $8.38 despite a $3.03 acquired IPR&D charge, then raised FY26 guidance to $85B-$87B of revenue and $35.50-$36.50 of non-GAAP EPS. That step-up is why the stock has support even in a higher-rate tape. The company also has real forward optionality with Foundayo gaining access across all three major PBMs, Medicare obesity coverage expanding by 35%, and Retatrutide moving toward a Q1 2027 U.S. submission.
The hold rating comes from what the market may be mispricing in the other direction: the assumption that volume growth cleanly converts to expanding value. The latest data say otherwise. FY2025 operating margin fell to 36.6% from 37.8%, and Q2 EBITDA margin dropped to 40.2%, down 870 bps from Q1. U.S. price was down 3% in Q2, and down 9% ex-adjustments, which matters because obesity reimbursement growth tends to bring tougher payer economics. In other words, Lilly is scaling into a much larger market, but not every incremental dollar is arriving at the same margin quality investors got used to.
What the case depends on from here is simple. First, Lilly must keep proving that demand breadth and access gains can outrun price pressure. Second, margins need to stabilize as manufacturing ramps and launch noise fades. Third, the pipeline, especially Retatrutide, must preserve Lilly’s category leadership three to five years out. Those are plausible outcomes, and management has earned credibility. They are just not underpriced at $1,183.46.
Key Metrics
| Metric | Value | Context | ||
|---|---|---|---|---|
| Current price | $1183.46 | Reference price for rating and scenario setup | ||
| Quant price target | $1163.56 | -1.7% vs current, Low confidence, basis: earnings_growth_blend | ||
| FY2025 revenue | $65.2B | +25.4% YoY | ||
| FY2025 EPS | $23.07 | +75.2% YoY | ||
| FY2025 operating margin | 36.6% | Down from 37.8% in prior FY | ||
| FY26 revenue guidance | $85B-$87B | Raised on 2026 Q2 call | ||
| FY26 non-GAAP EPS guidance | $35.50-$36.50 | Raised on 2026 Q2 call | ||
| Q2 EBITDA margin | 40.2% | Down 870 bps vs Q1 and down 800 bps vs prior-year Q2 | ||
| Valuation | P/E 39.59x | P/S 13.26x | P/B 31.17x | Premium to peers, with peer avg P/E 35.9x and peer avg P/S 4.9x |
| Leverage and cash flow | Debt/EBITDA 1.73x | Total debt $54.9B | FCF $7.8B | Leverage is manageable, but capex remains elevated |
| Price action | -8.4% vs 52-week high | +10.6% vs 200-day average | Not washed out, still trading above trend |
Financial Strength
Financial quality is strong, but not spotless. Lilly combines elite growth and profitability sub-scores with manageable leverage at 1.73x debt/EBITDA, yet the balance sheet is carrying $54.9B of debt and only a 42/100 financial health sub-score. Cash generation is solid at $7.8B of FCF even while capex runs at $2.9B, which fits a company still building out manufacturing capacity to protect category leadership. The real watch item is margin conversion, because the business is clearly scaling but recent data show more profit volatility than the stock’s premium valuation would normally tolerate.
Competitive Position
Lilly’s moat is built on three assets that are hard to copy at once: leading metabolic brands, a deep follow-on pipeline, and scaled manufacturing in a category constrained by supply and access. That moat is more durable today because management has turned supply from a bottleneck into an advantage, while securing PBM access and broadening reimbursement. The main durability question over 3-5 years is pricing, not demand, because the category should keep growing even as net price comes under pressure.
Management & Guidance
Management’s FY26 guide is clear and, so far, credible: $85B-$87B revenue, 49%-50.5% non-GAAP performance margin, and $35.50-$36.50 non-GAAP EPS. The call language was explicit, with the CFO stating, "We now expect full-year revenue to be between $85 billion and $87 billion." and "We now expect our non-GAAP performance margin to be between 49% and 50.5%... We now expect non-GAAP earnings per share of $35.50 to $36.50." Credibility is helped by the recent beat streak and by operational statements around access and supply, but investors should note management also flagged a slower second-half cadence due to one-offs, seasonality, and tougher OUS launch comps, so the guide is not without execution risk.
Segment Analysis
- Incretin franchise (Mounjaro + Zepbound) (Q2 revenue $14.9B): Core growth engine, up $6.3B YoY, driven by obesity and diabetes demand plus expanding access.
- United States (Not disclosed in provided data): Still the key profit pool, with July 1 Medicare GLP-1 Bridge expanding obesity coverage by 35% but U.S. pricing down 3% in Q2.
- International / ex-U.S. (Not disclosed in provided data): Important next leg of growth as management said there will be "no gating of launches either" for Foundayo ex-U.S.
- Broader portfolio (Not disclosed in provided data): Recent FDA approvals for pediatric Olumiant and once-weekly basal insulin add breadth, but the equity story remains dominated by incretins.
Capital Allocation
Capital allocation is aggressive but mostly rational for a company still in land-grab mode. FY cash deployment included $2.9B capex, $1.6B buybacks, and $1.5B dividends, while management continues to fund manufacturing capacity and selective external innovation such as Morphic. With FCF of $7.8B and leverage at 1.73x debt/EBITDA, the balance between growth reinvestment and shareholder return looks acceptable, though not especially cheap or cash-rich relative to market cap.
Management Execution & Track Record
Management has earned credibility since the 2024 Q3 call. Back then, Lilly guided FY24 revenue to $45.4B-$46.0B, said demand generation would accelerate as supply improved, and expected strong 2025 growth as newly launched medicines scaled. Since then, FY2025 revenue reached $65.2B, up 25.4%, and FY2025 EPS reached $23.07, up 75.2%, while FY26 guidance has now been raised to $85B-$87B revenue and $35.50-$36.50 non-GAAP EPS. The quarterly record also supports execution quality: after the -19.7% EPS miss in 2024-10-30, Lilly posted seven straight beats, including +23.4%, +22.7%, and +30.9%. The main miss versus the ideal path is margin smoothness, because Q2 EBITDA margin was 40.2%, down 870 bps from Q1, but the direction of the strategy has not changed materially and operations have mostly delivered what management promised on supply, demand activation, and product timing.
Positioning & Flows
Ownership is crowded but stable, with the top three institutions holding 69.7% and insiders owning 9.9%. Short interest is just 0.89% of shares, or 7.52M shares, with 2.7 days-to-cover, so there is little fuel for a squeeze and little evidence of strong bearish positioning. Options positioning is mildly supportive, with positive gamma and a zero-gamma level at $1,166.67, close to spot, which can damp volatility rather than amplify upside.
Bull Case
- Eight straight beats in seven of the last eight quarters, including +30.9%, +22.7%, and +23.4% EPS beats, show unusual operating momentum and conservative guidance discipline after the lone -19.7% miss in 2024 Q3.
- The incretin engine is still expanding: Mounjaro + Zepbound generated $14.9B in Q2, while management said Foundayo volumes were "almost doubling the volume that we had just a month ago."
- Management raised FY26 outlook to $85B-$87B revenue, 49%-50.5% non-GAAP performance margin, and $35.50-$36.50 EPS, with no expected supply gating for ex-U.S. Foundayo launches.
- Pipeline and access broaden the story beyond current GLP-1 demand, with Retatrutide U.S. submission in Q1 2027, Foundayo global rollout across major markets in 2027, and obesity coverage expanded by 35% under the Medicare GLP-1 Bridge.
Bear Case
- Valuation still leaves little room for execution noise: P/E 39.59x versus peer average 35.9x, P/S 13.26x versus 4.9x peers, and the quant base value is only $1,163.56, below spot.
- Profitability is not moving in a straight line. FY2025 operating margin slipped to 36.6% from 37.8%, and Q2 EBITDA margin of 40.2% was down 870 bps versus Q1 and 800 bps versus prior-year Q2.
- Pricing is a real offset to volume. U.S. price was down 3% in Q2, and management said ex-adjustments price was down 9%, which matters in a category that is attracting payer scrutiny as volumes scale.
- Balance sheet flexibility is adequate, not pristine for a trillion-dollar company. Debt/Equity is 1.62, Debt/EBITDA is 1.73, and Financial Health is 42/100, while capex and capacity spending remain elevated.
Valuation & Price Target
Engine price target $1163.56 (-1.7% vs current), Low confidence.
- P/E Multiple: $1382.09 (28% weight)
- PEG (growth-adjusted): $1518.41 (20% weight)
- P/S Multiple: $349.37 (18% weight)
- Quality-adjusted: $1429.62 (20% weight)
- DCF: $510.5 (6% weight)
The rating stays aligned with the quant baseline at HOLD, and the reason is valuation versus near-term payoff. The business quality is obvious: FY2025 revenue $65.2B, EPS $23.07, raised FY26 EPS guide to $35.50-$36.50, eight-peer quality score 76/100, and low overall risk score 38/100. But the engine’s $1,163.56 target sits below the current $1,183.46, peer P/E comparables are noisy with a wide 7.7x dispersion, and Lilly trades at 13.26x sales versus 4.9x peers while recent margin data weakened. Sell-side consensus is still Strong Buy (14 buy / 0 hold / 1 sell), but that signal is low quality here because the stock is already near its highs and the valuation leaves less room for positive surprise than the business fundamentals alone suggest.
Risk Assessment
Risk score 38/100 (Low). The biggest risk is paying a premium 39.59x P/E and 13.26x P/S for a story that still has visible margin compression, with Q2 EBITDA margin down 870 bps sequentially.
The Bottom Line
Rated HOLD, Low conviction. Lilly remains one of the highest-quality growth franchises in the market, and the medium-term business outlook still looks excellent. The problem is that the stock price already reflects much of that excellence, while margins and pricing trends have turned less clean at the same time. A more attractive entry would require either a better price or fresh evidence that FY27 earnings power is moving above the current trajectory without further margin erosion. A move toward BUY would need a cheaper setup or another clear step-up in forward earnings beyond the current $35.50-$36.50 FY26 guide.
Go deeper in the app
Live charts, options analytics, the full earnings-call breakdown, price alerts, and every other stock — updated in real time.
Get Tickr