Elanco Animal Health Incorporated (ELAN): what the price requires
At today's price, Elanco Animal Health Incorporated (ELAN) is priced for today's economics sustained for ~18.4 years. boothcheck doesn't publish a fair value or a price target; it shows what the price assumes, so you can judge whether that bar is too high.
Generated: 2026-07-13 · Source: https://boothcheck.com/report/ELAN
Headline
| Field | Value |
|---|---|
| Ticker | ELAN |
| Company | Elanco Animal Health Incorporated |
| Current price | $25.01/sh |
| Composition | Pet Health 49% / Farm Animal 50% / Contract Manufacturing and Other 1% |
What The Price Requires (Inversion)
The assumption today's price embeds, recovered by inverting the valuation.
| Field | Value |
|---|---|
| Inversion basis | whole-company |
| Operating margin needed | 16.7% |
| Operating margin today | 2.5% |
| Margin expansion implied | +14.2pp |
| Must persist for | 18.4y |
| Multiple paid | 138x operating income |
The operating-margin requirement is derived from the framework's value band at year 12, a separately labeled basis from the headline growth/duration solve.
Solve inputs: computed at a 9.7% cost of capital; growth searched up to the 25% self-funding ceiling; each 1pp moves the implied horizon ~2.6 years.
How unusual the bet is: high
| Reference | Value |
|---|---|
| vs own history | +4.31σ |
| sustained it ~10 years at this level | 14% |
| implied end-window share | 0% |
Valuation X-Ray
The price is justified by relative-multiple; asset-based land below the price.
How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.
| Family | Median price/FV | Models | Reads |
|---|---|---|---|
| Asset | 2.05x | 2 | expensive |
| Earnings | — | 0 | — |
| Relative | 1.14x | 2 | expensive |
| Growth | — | 0 | — |
Families that justify the price: Relative Families that call it expensive: Asset
The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 7.9%); the inversion above states its own rate.
Per-Model Detail (n=4)
| Model | Family | FV | Price/FV | Applicable | Methodology |
|---|---|---|---|---|---|
| DCF Perpetual Growth | Growth | $13.89 | 1.80x | no | FCF base $0.3B, growth 11% (input: historical growth), terminal g 4.0%, WACC 7.9%, 6yr projection |
| DCF Exit Multiple | Growth | $27.07 | 0.92x | no | Exit EV/EBITDA: 21.1x / 23.1x / 25.1x (bear / base = today's held flat / bull), 6yr |
| Relative Valuation | Relative | $38.68 | 0.65x | yes | P/S fallback (negative EPS): Sector P/S 4.0x × TTM revenue — excluded from consensus |
| Simple DDM | Growth | — | — | no | — |
| Two-Stage DDM | Growth | — | — | no | — |
| Simple Excess Return | Asset | $12.85 | 1.95x | yes | Reference only (book value floor): BV/sh $12.85, ROE negative |
| Two-Stage Excess Return | Asset | $11.56 | 2.16x | yes | Reference only (book value with convergence): BV/sh $12.85, ROE converges to ke |
| Discounted Future Market Cap | Growth | $22.30 | 1.12x | no | Rev $4.9B, growth 11% (input: historical growth; tapered), Terminal P/S: 2.1x / 2.6x / 3.0x (bear / base = today's held flat / bull, cap 8x) |
| Peter Lynch Fair Value | Relative | $0.00 | — | no | Negative/zero EPS — earnings-based value floored at $0 |
| Margin Trajectory | Growth | — | — | no | — |
| Earnings Power Value | Earnings | — | — | no | — |
| Residual Income | Asset | — | — | no | — |
| Graham Number | Asset | — | — | no | — |
| EV/EBITDA Relative | Relative | $15.31 | 1.63x | yes | EBITDA $0.69B × sector EV/EBITDA 16.0x |
| FCF Yield | Earnings | $0.19 | 131.63x | yes | FCF $315.0M / Kₑ 9.3% — zero-growth perpetuity (excluded from median) |
| SBC-Adj FCF Yield | Earnings | $0.01 | 2501.00x | yes | SBC-adj FCF $0.24B (FCF $0.32B − SBC $0.07B) capitalized at Kₑ (excluded from median) |
| Ben Graham Formula | Earnings | — | — | no | — |
| ROIC-Justified P/B | Asset | — | — | no | — |
| P/Sales Sector | Relative | $38.68 | 0.65x | no | Revenue $4.89B × sector P/S 4.0x |
| PEG Fair Value | Relative | — | — | no | — |
| Earnings Yield | Earnings | — | — | no | — |
| Funds From Operations Multiple | Relative | — | — | no | — |
| Clinical Phase NPV | Growth | — | — | no | — |
| Merton | Asset | — | — | no | — |
| V5 Mechanical | — | — | — | no | — |
Solvency
| Field | Value |
|---|---|
| Net debt | $4.2b |
| Net debt / NOPAT (after-tax) | 52.82x |
| Net debt / operating income (pre-tax) | 34.61x |
| Share count CAGR (dilution) | 0.7% |
| Burning cash | no |
Interest expense is not separately reported in the latest filings, so interest coverage cannot be computed.
Bullet Takeaways
- At $24.21 the price works out to roughly 135 times company-wide operating income, a multiple that only makes sense if Elanco compounds operating profit at close to its self-funding ceiling for something like eighteen years. The animal-health franchise is durable, but that is a long runway to ask of a business whose trailing operating margin sits near 2.5 percent.
- The first quarter of 2026 was the clearest evidence yet that the innovation portfolio is doing real work: revenue of $1.371 billion, up about 15 percent, with roughly 10 percent organic constant-currency growth, and management raised full-year guidance to 5 to 7 percent organic growth with adjusted EBITDA of $975 million to roughly $1.0 billion.
- The balance sheet is the governing constraint. Net debt of about $4.2 billion against thin trailing operating income, plus only $428 million of liquid assets, is why the model flags distress signals and why deleveraging, not growth, is the variable that decides whether the equity re-rates.
Bull Case
Start with what Elanco actually owns, because the moat here is narrower than the animal-health label suggests and that is exactly what makes the recent execution matter. This is a roughly even split between Pet Health and Farm Animal, each near half of revenue, with a sliver of contract manufacturing on top. Neither half carries the pricing power of a pure companion-animal pure-play like Zoetis, whose livestock products are only about 29 percent of revenue and whose companion-animal franchise anchors its margins (ZTS FY2025 10-K, accession 0001555280-26-000011). Elanco's edge is not a fortress moat; it is a broad, registered, hard-to-replicate portfolio across species and geographies, with the U.S. its largest market at 47 percent of 2025 revenue and Brazil, the U.K. and China next (ELAN FY2025 10-K, accession 0001739104-26-000012). The bull case is that this distribution and regulatory footprint is the asset, and that new products flowing through it convert into durable revenue.
The first quarter of 2026 is the proof point. Revenue rose about 15 percent to $1.371 billion, organic constant-currency growth ran near 10 percent, and adjusted EPS of $0.40 beat the $0.34 consensus by a wide margin. The driver was innovation, not price: Zenrelia, the company's atopic-dermatitis product, reached blockbuster trajectory, and Credelio Quattro added to the parasiticide line. Elanco describes this directly in its filings, where it frames product innovation and portfolio development as the core of its value-creation strategy, pursuing new chemical and biological entities to grow revenue rather than leaning on the legacy book (ELAN FY2025 10-K, accession 0001739104-26-000012). Management raised full-year guidance off that quarter to 5 to 7 percent organic growth, adjusted EBITDA of $975 million to about $1.0 billion, and adjusted EPS of $1.03 to $1.09.
The re-rating mechanism is leverage working in the equity's favor. With net debt near $4.2 billion sitting on top of a recovering EBITDA line, every dollar of incremental operating profit and every turn of debt paydown shifts value from creditors to shareholders faster than the revenue growth alone would suggest. Sell-side sentiment has moved with the operating story: the consensus skews to buy, the median target sits around $29.50, and TD Cowen lifted its target to $32 after the quarter. The bull does not need Elanco to become Zoetis. It needs the innovation engine to keep filling the existing channel while the balance sheet de-risks, and the first quarter says both are happening at once.
Bear Case
The bear case starts on the balance sheet, because that is where the fragility lives and no amount of product momentum erases it. Elanco carries about $4.65 billion of gross debt and roughly $4.2 billion net, against trailing operating income that the model reads near $122 million and only $428 million of liquid assets on hand. The filings show the company actively refinancing, taking a $20 million charge in 2025 on refinancing costs and the write-off of deferred financing costs inside interest expense (ELAN FY2025 10-K, accession 0001739104-26-000012). The equity is a thin sliver on top of a large, fixed creditor claim. That structure amplifies returns when EBITDA rises and it amplifies pain when it does not.
The second problem is what the price is asking the business to do. At $24.21 (June 27, 2026) the market is paying about 135 times company-wide operating income, which inverts to operating growth held near the self-funding ceiling for close to eighteen years. Set against Elanco's own history that pace runs well above what it has actually delivered, and against the broader record only about 14 percent of comparable fast-growers sustained that kind of compounding for even a decade. The rarity signal here is high. The market is underwriting a long, uninterrupted compounding run from a company whose reported operating margin is still in the low single digits.
The third problem is that the headline growth leans on a product whose label is not yet settled. Zenrelia is the standout, but the FDA has requested additional data and a new study is underway, with submission expected only by year-end, and management's 2026 guidance explicitly does not assume an incremental U.S. label change. So the most important growth driver carries a regulatory overhang that, if it goes the wrong way, removes upside the market may already be pricing. Layer that on a balance sheet with little slack and a valuation demanding near-perfect execution, and the asymmetry tilts toward disappointment. The business is improving. The price has already assumed the improvement compounds for two decades.
Valuation
Begin with the inversion, because it frames everything else. At $24.21 the price embeds roughly 135 times company-wide operating income, which solves to operating growth held near the 25 percent self-funding ceiling for about eighteen years under a 9.7 percent cost of capital. Each percentage point of growth moves that implied horizon by roughly 2.6 years, so the result is sensitive, but the direction is unambiguous: this is a high, demanding bet relative to both Elanco's own delivered history and the base rate of sustained fast growth.
The valuation X-ray reinforces why the methods disagree. The projection models, DCF perpetual growth near $14 and DCF exit multiple near $26, are flagged inapplicable because of distress signals tied to sustained net-income losses, negative retained earnings, and a weak Altman read, so the engine declines to lean on them. The relative-valuation read is the outlier at about $38.68, but that is a price-to-sales fallback at a 4.0 times sector multiple applied to trailing revenue, used because EPS is negative, and it is excluded from the consensus for that reason. The asset-based methods cluster low, with book value per share near $12.85 acting as a reference floor and the excess-return models landing just below it.
The honest synthesis is that the two coherent reads, the inversion band centered near $9.24 and the asset floor near $12.85, both sit well below $24.21, while the one method that exceeds the price is a sales-multiple proxy applied because earnings are negative. The gap between those is the optionality premium the market is paying for the innovation portfolio to keep converting and the balance sheet to deleverage.
Catalysts
The near-term calendar is dense. First-quarter 2026 results on May 6 beat on both lines, revenue of $1.371 billion against roughly $1.28 billion expected and adjusted EPS of $0.40 against $0.34, and management raised full-year guidance to 5 to 7 percent organic growth, adjusted EBITDA of $975 million to about $1.0 billion, and adjusted EPS of $1.03 to $1.09. Second-quarter guidance points to $1.30 billion to $1.325 billion in revenue with 4 to 6 percent organic constant-currency growth, so the next print is the test of whether the innovation ramp holds its pace.
The single most consequential catalyst is the Zenrelia label. The FDA requested additional data, a new study is running, and submission is expected by the end of the year. Because 2026 guidance does not assume an incremental U.S. label change, a favorable outcome would be upside the company has not baked in, and an unfavorable one would pressure the most important growth driver. Deleveraging is the other watch item: management has framed continued debt reduction, margin expansion, and efficiency work as the path to sustainable earnings, and each turn of net debt paid down matters more to the equity than to most balance sheets given how thin the cushion is. Analyst sentiment has tracked the operating story, with a buy-leaning consensus, a median target near $29.50, and TD Cowen raising its target to $32 after the quarter.
Sources: Investing.com Q1 2026 transcript, StockTitan ELAN 10-Q, GuruFocus TD Cowen $32 target, MarketBeat ELAN forecast.
Peer Cohorts (Per Segment, With Filing Citations)
Animal Health (single reportable segment) (reported)
- ZTS (Zoetis Inc.)
- (no filing in the citation store)
- PAHC (Phibro Animal Health Corporation)
- (no filing in the citation store)
- OGN (Organon & Co.)
- (no filing in the citation store)
- VTRS (Viatris Inc)
- (no filing in the citation store)
- TEVA (TEVA PHARMACEUTICAL INDUSTRIES LIMITED)
- (no filing in the citation store)
- AMRX (AMNEAL PHARMACEUTICALS, INC.)
- (no filing in the citation store)
- PRGO (Perrigo Company plc)
- (no filing in the citation store)
- BHC (Bausch Health Companies Inc.)
- (no filing in the citation store)
Methodology Note
- Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
- Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
- Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
- Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.
Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.