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Can Eli Lilly (LLY) Pull a Surprise this Earnings Season?


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Eli Lilly and Company (LLY - Analyst Report) is set to report third-quarter 2016 results on Oct 25, before the market opens. Last quarter, the company posted a positive earnings surprise of 1.18%.

The company’s performance has been pretty strong so far with earnings surpassing expectations in three of the last four quarters, the average positive surprise being 4.31%.

LILLY ELI & CO Price and EPS Surprise


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

Let’s see how things are shaping up for this announcement.

Factors to Consider

New products like Trulicity and Cyramza as well as strong performance by the company’s older products like Trajenta, Cialis, Forteo, Humalog Strattera and Erbitux drove significant top-line growth in the second quarter of 2016. The animal health business and the diabetes franchise did reasonably well in the quarter. We expect the trend to continue in the third quarter as well. Revenues from other new products like Taltz, Jardiance, Portrazza and Basaglar should also contribute.

However, sales of Alimta, Cymbalta and Zyprexa are likely to decline further. Lower demand in the U.S. due to competitive pressure from immuno-oncology agents has mainly hurt Alimta sales. Meanwhile, loss of exclusivity is affecting sales of Cymbalta and Zyprexa.

Further, we expect marketing, selling and administrative as well as R&D expenses to continue to increase, which will again exert pressure on margins.

Earnings Whispers

Our proven model does not conclusively show that Lilly is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.

Zacks ESP: The Earnings ESP for the company is 0.00% as both the Most Accurate estimate as well as the Zacks Consensus Estimate stand at 96 cents.

Zacks Rank: Lilly’s Zacks Rank #3 increases the predictive power of ESP. However, we need to have a positive ESP to be confident about a positive earnings surprise.

Meanwhile, we caution against Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Some stocks in the large-cap healthcare sector that have a positive Earnings ESP and a favorable Zacks Rank include:

Amgen Inc. (AMGN - Analyst Report) , with an Earnings ESP of +1.79% and a Zacks Rank #3. The company will be reporting results on Oct 27.

Bristol-Myers Squibb Company (BMY - Analyst Report) – slated to report on Oct 27 – has an Earnings ESP of +4.69% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Novartis AG (NVS - Analyst Report) , with an Earnings ESP of +0.84% and a Zacks Rank #3. The company is scheduled to release results on Oct 25.

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