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Eli Lilly (LLY) May Beat Q2 Earnings: Will the Stock Gain?

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Eli Lilly and Company (LLY - Free Report) is set to report second quarter 2016 earnings results on Jul 26 before the market opens. The company’s performance has been pretty good with earnings surpassing expectations in three of the last four quarters with an average positive earnings surprise of 9.42% during this period. However, Lilly delivered a negative earnings surprise of -2.35% in the first quarter of 2016.

Let’s see how things are shaping up for the company this quarter.

What Our Model Indicates

Our proven model shows that Lilly is likely to beat estimates this quarter because it has the right combination of two key ingredients.

Positive Zacks ESP: Earnings Surprise Prediction or Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +1.18%. This is very meaningful and a leading indicator of a likely positive earnings surprise for shares.

Zacks Rank #3 (Hold): Note that stocks with Zacks Ranks of #1, #2 and #3 have a significantly higher chance of beating earnings. The sell-rated stocks (#4 and #5) should never be considered going into an earnings announcement.

The combination of Lilly’s Zacks Rank #3 and +1.18% ESP makes us very confident in looking for a positive earnings beat on Jul 26.

LILLY ELI & CO Price and EPS Surprise

LILLY ELI & CO Price and EPS Surprise | LILLY ELI & CO Quote

Factors at Play

Products like Trajenta, Cialis, Forteo, Strattera, Erbitux, and animal health products should drive growth while revenues from new products like Cyramza, Trulicity, Jardiance, Portrazza and Basaglar will increase. The company had upped its outlook earlier this year to reflect currency rates and a lower tax rate resulting from the recognition of a discrete tax benefit in the first quarter.

Meanwhile, the modification of the company’s agreement with Incyte Corporation (INCY - Free Report) provides Lilly with an upfront payment of $35 million that will be recognized as other income in the second quarter. The takeback of North American rights for Erbitux will also boost sales.

Investors will also be focused on the performance of recently launched Taltz for the treatment of moderate to severe plaque psoriasis.

However, price revisions in Japan, effective Mar 1, will impact sales. Other headwinds include generic competition being faced by drugs like Alimta and Cialis in certain territories. Meanwhile, Humalog sales declined in the U.S. in the first quarter. Moreover, Alimta may continue to experience some softening in later lines of therapy (second line and beyond) reflecting the launch of Cyramza in the second-line setting as well as competition from immuno-oncology agents.

Stocks That Warrant a Look

Here are some health care stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter.

Gilead Sciences Inc. (GILD - Free Report) has an Earnings ESP of +6.91% and carries a Zacks Rank #2. It will be reporting results on Jul 25.

Amgen Inc. (AMGN - Free Report) has an Earnings ESP of +1.10% and carries a Zacks Rank #3. It will be reporting results on Jul 27.

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