Eli Lilly and Company
Mr. Market is asking $1,117.26 for the business today.
The business is worth approximately $499.97.
That is a Δ of -55.3% from price to fair value. Mr. Market wants more for LLY than the business is worth. We would pass.
- G1 mean (24.8%) and median (14.7%) diverge — outlier estimates may be skewing the consensus.
Subscribe to read the full reckoning on LLY.
Mr. Market is asking $1,117.26. We say it's worth $499.97. The full eight-step audit follows for subscribers.
The free version of the site features one fully open Quote each day — today it's Coca-Cola.
The Reckoning
Eight steps. Every input is visible. Every formula is on the page. The same protocol is applied to every stock — consistency is most of the discipline.
Data validation
Garbage in, garbage out. Before any math runs, we confirm we have what the protocol requires.
| Operating Cash Flow > 0 | ✓ |
| Depreciation & Amortization exists | ✓ |
| Diluted shares outstanding > 0 | ✓ |
| At least 3 forward EPS estimates (we have 10) | ✓ |
Owner Earnings = OCF − D&A
From Buffett's 1986 Berkshire annual letter. Owner Earnings is the cash a business produces after spending what is necessary to maintain its current productive capacity. We use depreciation & amortization as the proxy for that maintenance reinvestment — “vaguely right rather than precisely wrong.”
| Operating Cash Flow (latest annual) | $16.81B |
| Depreciation & Amortization | $2.00B |
| Fiscal period end | Owner Earnings | Note |
|---|---|---|
| 2025-12-31 | $14.82B | |
| 2024-12-31 | $7.05B | ← median (used as headline OE) |
| 2023-12-31 | $2.71B |
Spec (Stage 1) smooths Owner Earnings via the median of the last three annual filings. The median trims outliers symmetrically — a single bad year or a single working-capital swing no longer dominates. If the median itself comes out non-positive, that flows through to the IV honestly (no rescue to a best-positive year).
| Owner Earnings (smoothed, headline) | $7.05B |
Growth — analyst consensus, capped, then faded to GDP
G1 is the simple average of the year-over-year EPS growth rates we can compute from the available forward analyst consensus — up to five years out from the latest actual, fewer when fewer estimates are on file — capped at 20% and floored at 0%. G2 is forecasted U.S. real GDP growth — no business compounds faster than the overall economy forever. Between them, growth fades linearly.
| From → To | EPS | → EPS | YoY growth |
|---|---|---|---|
| 2025 → 2026 | 22.95 | 36.40 | +58.6% |
| 2026 → 2027 | 36.40 | 46.64 | +28.1% |
| 2027 → 2028 | 46.64 | 53.49 | +14.7% |
| 2028 → 2029 | 53.49 | 60.29 | +12.7% |
| 2029 → 2030 | 60.29 | 66.16 | +9.7% |
| G1 mean (5-yr available forward chain) | 24.8% |
| G1 median (sanity check) | 14.7% |
| G1 cap / floor | 0% / 20% |
| G1 (clipped) | 20.0% |
| G2 (forecasted U.S. real GDP) | 2.3% |
⚠ G1 mean and median diverge by > 10pp — outlier estimates may be skewing the consensus.
Projected Owner Earnings, years 1–11
Apply the linear-fade growth schedule to Owner Earnings. Year 11 exists only as the input to the terminal value formula in step V — it is not summed.
| Year | Growth applied | Projected OE | Discount factor | Present value |
|---|---|---|---|---|
| +1 | 20.00% | $8.46B | 0.944 | $7.99B |
| +2 | 18.23% | $10.00B | 0.891 | $8.91B |
| +3 | 16.46% | $11.65B | 0.841 | $9.80B |
| +4 | 14.68% | $13.36B | 0.794 | $10.60B |
| +5 | 12.91% | $15.09B | 0.749 | $11.30B |
| +6 | 11.14% | $16.77B | 0.707 | $11.85B |
| +7 | 9.37% | $18.34B | 0.667 | $12.23B |
| +8 | 7.59% | $19.73B | 0.630 | $12.42B |
| +9 | 5.82% | $20.88B | 0.594 | $12.41B |
| +10 | 4.05% | $21.72B | 0.561 | $12.19B |
| +11 (TV input) | 2.28% | $22.22B | 0.530 | — |
Discount rate — 10-year Treasury
The discount rate is the required rate of return — the minimum we demand to justify owning this business instead of a risk-free Treasury bond. Buffett anchors here for a reason: if a stock can't generate returns above the risk-free rate after accounting for its uncertainty, it is not an attractive investment.
| 10-year U.S. Treasury yield | 4.95% |
| Risk premium added | 1.00% |
| Discount rate (r) | 5.95% |
10Y Treasury 4.95% + Pharma / biotech — +1pp risk premium for patent-cliff and pipeline uncertainty.
Terminal value — perpetuity beyond year 10
No business stops generating cash after a decade. The terminal value captures the value of all cash flows from year 11 forward, modeled as a perpetuity growing at G2. This is typically the largest single component of intrinsic value.
| Year 11 Owner Earnings | $22.22B |
| g₂ used (with r − 0.5pp guard) | 2.3% |
| Future value of terminal = Y11 OE / (r − g₂) | $604.71B |
| Discount factor at year 10 | 1 / (1 + r)¹⁰ = 0.561 |
| Present value of terminal | $339.27B |
Intrinsic value per share
Sum the present value of all projected Owner Earnings (years 1–10) plus the present value of the terminal value. Divide by fully diluted shares outstanding.
| PV sum, years 1–10 | $109.70B |
| PV of terminal value | $339.27B |
| Total intrinsic value | $448.97B |
| Shares used (diluted weighted-average) | $898.0M |
| Intrinsic value per share | $499.97 |
Margin of safety
Intrinsic value is an estimate, not a fact. The margin of safety is the buffer that protects against being wrong. Default 25%; raise it for lower-quality businesses or higher-uncertainty situations.
| Intrinsic value per share | $499.97 |
| Margin of safety (rate) | 25% |
| Buy price (IV × (1 − MoS)) | $374.97 |
LLY — Eli Lilly and Company
| Symbol | LLY |
| Mr. Market’s asking price | $1,117.26 |
| Intrinsic value (with 25% MoS) | $374.97 |
| Δ% vs current price | -55.3% |
| Operating Cash Flow (latest annual) | $16.81B |
| G1 / G2 | 20.0% / 2.3% |
| Mr. Market’s mood | EUPHORIC |
| Final verdict | ASKING TOO MUCH |
Mr. Market DiagnosticsBuffett-style screens (not in canonical protocol)Two supplementary checks we keep around but do not use to drive the BUY signal: an 8-dimension business-durability screen, and Buffett's 2010 Two-Column cross-check. Click to expand.
[ Expand ]
Two supplementary checks we keep around but do not use to drive the BUY signal: an 8-dimension business-durability screen, and Buffett's 2010 Two-Column cross-check. Click to expand.
Score: 25 / 100
| Check | Threshold | Observed | Verdict |
|---|---|---|---|
| ≥5 years of financial history (free-tier window) | >= 5 | 10 | ✓ |
| Positive net income every year of last 5 | 5 / 5 | 5 / 5 | ✓ |
| FCF (CFO − CapEx) positive in all of last 5 years | 5 / 5 | 4 / 5 | ✗ |
| Operating-margin coefficient of variation ≤ 0.15 | ≤ 0.15 | 0.21 | ✗ |
| EPS predictability R² ≥ 0.80 (5-yr trend fit) | >= 0.80 | 0.72 | ✗ |
Implied IV: $327.64
| Column A (cash + securities − debt) per share | -$36.12 |
| Sector multiple used | 11× pre-tax operating income |
| Column B (operating EPS × multiple) | $363.76 |
| Two-Column IV per share | $327.64 |
The Sources
Every number above traces back to a specific external source. Company fundamentals (cash flow, income statement, balance sheet) come from the company's own SEC filings, fetched through Financial Modeling Prep's normalized GAAP schema. The 10-year and 30-year U.S. Treasury yields come from FMP's daily Treasury constant-maturity series. Analyst-consensus EPS estimates come from FMP. The terminal growth rate G2 is computed from the Federal Reserve's FRED real-GDP series (GDPC1), trailing-4-quarter YoY-YoY, with a Supabase-backed last-known-good fallback if FRED is temporarily unreachable. The raw inputs follow.
Cash flow (most recent)
| Net income | $20.64B |
| Operating cash flow | $16.81B |
| Depreciation & amortization | $2.00B |
| Stock-based comp | $626.0M |
| Capital expenditure | -$7.84B |
| Free cash flow | $8.97B |
| Filing date | 2026-02-12 |
Forward analyst EPS estimates
| Year | EPS Avg | Low | High | Analysts |
|---|---|---|---|---|
| 2021 | 8.13 | 7.49 | 8.91 | 4 |
| 2022 | 7.64 | 7.04 | 8.37 | 5 |
| 2023 | 6.23 | 5.86 | 6.58 | 10 |
| 2024 | 12.83 | 12.44 | 13.39 | 17 |
| 2025 | 23.59 | 23.02 | 24.37 | 18 |
| 2026 | 36.40 | 32.95 | 39.14 | 15 |
| 2027 | 46.64 | 41.02 | 51.78 | 15 |
| 2028 | 53.49 | 48.17 | 59.46 | 9 |
| 2029 | 60.29 | 54.76 | 65.92 | 3 |
| 2030 | 66.16 | 60.10 | 72.35 | 3 |