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Eli Lilly (LLY) Stock Down 6.8% in 2019: Can Q2 Earnings Boost Performance?

Mitchell Moore

Eli Lilly and Company LLY stock is down 6.8% YTD, slightly worse than a large-cap pharma average of -5.4%. Let’s dive into Eli Lilly and see what to expect from its results heading into its Q2 earnings report that will be released before the market opens on Tuesday, July 30.

Overview

Eli Lilly is the 10th largest pharmaceutical company in the world, with a market share in 2018 of 2.57%. The company was founded in 1876 in Indianapolis by Eli Lilly and has been on the cutting edge of medicine ever since, with innovative products such as Jonas Salk’s polio vaccine and the first publicly available human insulin.

Lilly currently focuses on three pharmaceutical areas: oncology, mental health, and diabetes. LLY’s stock price has done very well in the past five years, with a huge jump in 2018. The price has backed off from those highs a bit, but we may see it push higher in the coming months.

 

Currently, Lilly sells many widely used drugs such as Cialis, Cymbalta, Methadone, and Prozac. The top revenue earner for the company is now Trulicity, a once weekly injection treatment for Type II diabetics that helps the body increase insulin levels. Last year, it brought in over $3 billion in revenue.

In January, Lilly announced that it would acquire Loxo Oncology for about $8 billion in cash. The firm’s Loxo investment added a lot of weight to Lilly’s oncology efforts. Loxo, in partnership with Bayer BAYRY, currently has one cancer treatment approved by the FDA, but is awaiting approval in the EU. It also has three drugs in clinical development.

The FDA also just approved on Wednesday Lilly’s hypoglycemia treatment drug. This drug, called Baqsimi, is a nasally administered glucagon powder approved for emergency treatment. Hypoglycemia is a condition in which blood sugar falls to very low levels, and happens most often in diabetics. Many diabetics keep injectable glucagon on hand in case of emergencies, so this product has a large addressable market as many people may see this as a better and safer alternative to an injection and switch.

Outlook

Lilly currently has 9 drugs under regulatory review, with another 54 in clinical trials. This is a strong pipeline that will hopefully drive Lilly’s future growth. Some of these drugs are very promising revenue generators, such as a migraine drug currently under FDA review. Migraine drugs have a very large addressable market, since an estimated 12% of the U.S. suffers from them.

Our Zacks Consensus Estimates predict a year-over-year Q2 revenue will decrease by 11.05% to $5.65 billion. Our estimates also call for fiscal year revenue to fall 9.96% to $22.11 billion. However, revenues have increased each year since 2014, so the company is not exactly in a tight spot. And estimates do show a projected 6.64% comeback in 2020.

Earnings estimates look much more promising for the firm in the coming quarters. This quarter, earnings are projected to shrink by just 2.67% over Q2 2018. While next quarter earnings are projected to grow by 4.32%, representing a bounce back.

Full-year fiscal 2019 earnings are estimated to expand by 1.98%. Plus, next year’s estimates project full-year EPS to jump 16.14% higher than our current-year estimate. Compared to the rest of the large-cap pharmaceutical industry, these yearly growth numbers look quite impressive. The industry’s earnings are estimated to shrink by 2.3% in 2019 and grow only half as much as Lilly in 2020 at 8.4%

Lilly stock is slightly overvalued compared to its peers at the moment, with a forward P/E of 17.58x. against its peer-group’s 15.18x average. This means investors are willing to pay more for Lilly’s future earnings than for other large cap pharma companies. 

Bottom Line

Eli Lilly currently holds a Zacks Rank #3 (Hold), as earnings estimates have remained roughly the same throughout the quarter. What little estimate change there was, happened downward, but Lilly does have a strong history of earnings beats so we could be surprised. Investors should watch this stock long term as LLY’s strong pipeline comes into production in the next few years.

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