For Immediate Release
Chicago, IL – July 26, 2012 – Zacks Equity Research highlights GATX Corp. (GMT) as the Bull of the Day and Darden Restaurants, Inc. (DRI) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Eli Lilly & Company (LLY), Johnson and Johnson (JNJ) and Pfizer (PFE).
Full analysis of all these stocks is available at http://at.zacks.com/?id=2678.
Here is a synopsis of all five stocks:
We maintain our Outperform recommendation on GATX Corp. (GMT). The company's second quarter adjusted earnings surpassed the Zacks Consensus Estimate and improved year over year, primarily on higher lease rates, better asset utilization, and improvement in lease terms alongside higher demand for locomotives.
We expect these positive factors to continue to aid the company s top and bottom line results. In addition, the company's focus on investments to increase its asset base and expansion in emerging markets for tapping potential opportunities remain encouraging for future growth.
Going forward, GATX Corp. enjoys a healthy balance sheet and is committed towards enhancement of shareholder value through strong dividend payments. Hence, we reiterate our Outperform rating with a target price of $49, based on 17.9x our earnings estimate for 2012.
Darden Restaurants, Inc. (DRI) boasts a unique position driven by its strong value proposition, menu improvements, excellent unit-level execution with differentiated brands and a balanced portfolio, which provides stronger diversification in sales and cost synergies. Favorable food and energy costs will also support Darden in 2013.
However, the company is not altogether immune to the challenges. The recent woes at one of its core brands, Olive Garden, continue to nag the company. Stiff competition resulting in higher discounting rates, failure of some promotional offers, probability of higher 2013 SG&A expenses as well as cautious consumer spending will add further woes to the worry.
Most importantly, Darden recently slashed its earnings per share guidance for 2013 to reflect the dilutive effect of the latest Yard House acquisition. Hence, we downgrade the stock from a Neutral to Underperform recommendation.
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Lilly Beats, Lifts View Again
Eli Lilly & Company (LLY) reported second quarter 2012 adjusted earnings per share of 83 cents, 6 cents above the Zacks Consensus Estimate but 29.7% below the year-ago earnings of $1.18. The year-over-year decline was attributable to lower revenues in the second quarter of 2012.
Second quarter revenues declined 10% to $5.60 billion. However, revenues narrowly surpassed the Zacks Consensus Estimate of $5.56 billion. Second quarter 2012 revenues were hurt by reduced sales of Zyprexa. Sales of Zyprexa, which went off patent in the EU and the US in late 2011, plummeted 73% in the second quarter of 2012. Currency fluctuation impacted revenues negatively by 2%.
Reported earnings (including special items) declined 22% to 83 cents per share.
Second quarter revenues declined mainly due to a 9% decrease in volume. A 1% price increase partially mitigated the effect of lower volume. The lower volume was mainly due to the loss of exclusivity for Zyprexa.
US revenues fell 10% to $3.0 billion mainly due to the loss of market exclusivity of Zyprexa. Ex-US revenues fell 11% to $2.6 billion, mainly due to the loss of exclusivity for Zyprexa.
During the second quarter, Zyprexa recorded a 73% decline in revenues, which came in at $379.5 million. US revenues plummeted 96% due to lower prices. International revenues decreased 50%, mainly due to the loss of market exclusivity in major markets apart from Japan.
Products which performed well in the second quarter included Cymbalta (22% growth to $1.2 billion), Alimta (8% growth to $659.5 million), and Forteo (20% growth to $276.4 million). We were pleased to hear that Cymbalta has gained pediatric exclusivity, which means the product will enjoy an additional six months of exclusivity in the US.
Both Humulin and Humalog sales in the US were negatively impacted by their removal from a large formulary in 2012.
Eli Lilly’s Animal Health segment contributed $512.2 million (up 32%) to revenues. Higher demand for companion animal products, higher prices and the impact of the acquisition of certain animal health products from the Janssen unit of Johnson and Johnson (JNJ) helped boost revenues from the segment.
Effient posted revenues of $111.0 million, up 55%. While US sales increased 56% to $81.0 million, driven by higher demand and higher prices, ex-US sales increased 52% to $30.1 million driven by higher demand in Europe.
Adjusted expenses decreased 2% during the quarter. Research and development (R&D) expenses increased 5% to $1.3 billion. Marketing, selling and administrative expenses declined 5% to $1.9 billion mainly due to lower marketing costs.
Earnings Guidance Up Again
Apart from announcing second quarter results, Eli Lilly upped its earnings guidance for 2012 the second time this year. Eli Lilly now expects earnings in the range of $3.30 - $3.40 per share on revenues of $21.8 - $22.8 billion. Earlier, Eli Lilly had guided towards earnings of $3.15 - $3.30 on revenues of $21.8 - $22.8 billion. The Zacks Consensus Estimate currently stands at $3.29 per share.
While the loss of Zyprexa exclusivity is expected to impact revenues by more than $3 billion, products like Cymbalta, Cialis, Humalog, Alimta and Forteo are expected to continue performing well. Moreover, new products like Effient, Axiron and Tradjenta should also contribute to revenues. The Animal Health business should also continue performing well. Meanwhile, revenue growth in Japan and emerging markets will be impacted by pricing actions in Japan and the loss of patent protection for Zyprexa and other products in some emerging markets.
Eli Lilly is working on controlling costs and expects operating expenses to remain flat in 2012. While marketing, selling and administrative expenses are now expected to decline to $7.3 billion - $7.7 billion (old guidance: $7.4 billion - $7.8 billion), research and development expenses are expected to remain flat or increase to $5.0 billion - $5.3 billion.
Eli Lilly expects to buy back shares worth $420 million by the end of 2012.
Meanwhile, Eli Lilly remains on track to meet or exceed its mid-term guidance. From now through 2014, the company expects annual net income of at least $3 billion on revenues of at least $20 billion. Operating cash flow is expected to be at least $4 billion every year during this time period.
Post 2014, Eli Lilly expects to return to top and bottom-line growth.
Neutral on Eli Lilly
We currently have a Neutral recommendation on Eli Lilly, which carries a Zacks #3 Rank (short-term ‘Hold’ rating). The biggest near-term challenge for Eli Lilly will be to replace the revenues that will be lost to generic competition now that blockbuster drug, Zyprexa, has lost US and EU exclusivity. We expect the top-and bottom-line to remain under pressure as the contraction in Zyprexa sales more than offsets growth in Cymbalta, diabetes and new product sales. The generic threat will continue to pose challenges for Eli Lilly with Cymbalta slated to lose patent protection in late 2013 and Evista in 2014. On the flip side, the Animal Health business and the diabetes franchise should provide some downside support.
Meanwhile, we expect investor focus to remain on Eli Lilly's high risk-return Alzheimer’s candidate, solanezumab, which is currently in late-stage development, with results expected later this year. The Alzheimer’s disease market represents huge commercial potential and a successfully developed product could generate billions of dollars in sales once launched. However, the successful development of therapies for the treatment of Alzheimer’s is challenging and we note that several companies have failed in developing treatments for Alzheimer’s. In fact, Pfizer (PFE) recently presented disappointing top-line results on Alzheimer’s candidate bapineuzumab from one of four ongoing phase III studies.
Get the full analysis of all these stocks by going to http://at.zacks.com/?id=2649.
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