ELI LILLY & Co (LLY) stock intrinsic value fair value estimate & owner earnings analysis

Eli Lilly is a US drugmaker whose business has been remade by tirzepatide, sold as Mounjaro for type 2 diabetes and Zepbound for obesity. Those two brands supplied 56% of 2025 revenue of $65.2 billion, up from almost nothing in 2021, and about 65% of second-quarter 2026 sales. The rest of the company is a broad portfolio: Verzenio (breast cancer), Taltz (psoriasis), Jardiance (shared with Boehringer Ingelheim), the older diabetes drug Trulicity, and newer launches including Kisunla (Alzheimer's), Ebglyss, Omvoh, Jaypirca and the obesity pill Foundayo (orforglipron), approved by the FDA in April 2026. How we measure earnings. We start from operating cash flow, remove working-capital swings, and subtract stock compensation and the capital spending needed to maintain the business. Lilly is in the middle of a huge factory build-out (capital spending rose from $1.9 billion in 2022 to $7.8 billion in 2025). We treat as growth spending only the part matching Lilly's ten-year average capital intensity (6.9% of each year's added revenue), so most of the build-out is still charged as a cost, which is conservative. On this basis owner earnings were $10.24 a share in 2024 and $19.83 in 2025; before interest, the business generated $10.88 and $20.54 a share. Lilly buys research programs every year (about $3 billion a year recently); that cash is paid outside operating cash flow and is not deducted above, so we charge it instead by setting the long-run earnings we credit after today's patents expire well below what the non-tirzepatide business earns now. Working capital absorbed $8.1 billion in 2025, including a $6.6 billion rise in prepaid expenses and other assets that the annual report does not explain. We treated this as timing rather than an ongoing cost because the first half of 2026 absorbed only $2.3 billion while sales grew about 51%. Starting point. Earlier years describe a much smaller company, and 2023-2024 were held back by an FDA-declared tirzepatide shortage that lasted until December 2024, so we measure from 2025 ($20.54 a share). The first half of 2026 already produced about $15.75 a share, so 2026 should land near $30, a 46% increase, below the 89% growth actually achieved in 2025. Base case: $306 a share. 2026 at about $30. In 2027 tirzepatide cash grows 12% as two things already in place contribute a full year: Foundayo, and Lilly's pricing agreements with the US government under which Medicare patients gain discounted access to its obesity medicines from July 1, 2026. Growth is then 4% a year through 2030 as factory capacity already under construction comes online, with continuing US price declines absorbing much of the volume gain. We give no credit for new markets beyond these, for retatrutide, or for any other unapproved drug. From 2031 to 2035 the franchise is held flat because Medicare price negotiation becomes possible for tirzepatide around then, as has already happened to Novo Nordisk's semaglutide. The tirzepatide compound patent expires in the US in 2036 (Europe 2037, Japan 2040); we cut franchise cash to 60% of its prior level in 2036, 35% in 2037 and 25% in 2038, then fade it 15% a year. The rest of the business loses protection on Trulicity (US 2027), Jardiance (2029), Taltz (2030) and Verzenio (2031) and declines to about $8.40 a share by 2033, a level we hold indefinitely. That continuing value rests on Lilly's long record of replacing lost blockbusters such as Zyprexa, Cymbalta, Cialis and Alimta through its research engine, which now spends far more than when the whole company earned $6 to $8 a share before tirzepatide. The business is worth about $350 a share; less net debt of about $45, the shares are worth about $306. Bear case: $174 a share. 2026 at $28, then tirzepatide cash falls 6% a year through 2030 as US prices keep falling under government pricing agreements and competition from Novo Nordisk's oral Wegovy and from generic semaglutide in several countries outside the US, and 4% a year from 2031 to 2035. The patent cliff is steeper (50%, 25% and 15% of the prior level in 2036-2038, then falling 25% a year), and the rest of the business shrinks 5% a year to $5 a share, slightly below its pre-tirzepatide level, and holds there. The business is worth about $219 a share; less about $45 of net debt, $174. Bull case: $411 a share. 2026 at $32 (the first half doubled), tirzepatide cash up 15% in 2027, 6% a year in 2028-2030 as the new plants fill, and 2% a year to 2035. The cliff is milder (70%, 50% and 40% of the prior level in 2036-2038, helped by Foundayo and longer foreign patents, then falling 10% a year), and the research engine fully replaces patent losses elsewhere at about $11.20 a share. The business is worth about $456 a share; less about $45 of net debt, $411. Debt. At June 30, 2026 Lilly owed $54.9 billion and held $9.0 billion of cash. Most long-term debt is fixed-rate at costs well below 6% (2025 interest expense was about 2.4% of average debt); we value that advantage at roughly $6 billion, giving net debt of about $40.0 billion, or $44.71 per diluted share on 893.7 million shares. Interest of roughly $0.70 a share is tiny against cash generation of $28 or more a share, so every case carries its debt easily. What changed since our previous estimate. We previously put the central value at about $156 a share, discounting cash at 8.5% to 11.5%, deducting all capital spending as a cost, and starting from 2025 owner cash of $9.28 a share. We now use a flat 6% rate, charge only the maintenance share of capital spending, and recognize a first half of 2026 that roughly doubled from a year earlier. Working the other way, we now end the tirzepatide earnings stream after its 2036 patent expiry instead of growing all earnings forever. What would make this wrong. Tirzepatide is about two-thirds of sales and an even larger share of profit. Faster price erosion, a clearly better competing drug, a safety problem, or a large debt-funded acquisition would push value toward the bear case or below it. Conversely, approval and uptake of retatrutide or broader obesity coverage would add value we have not counted.