Readers of this space know that the investment bias is toward large-cap companies with demonstrated business models and who have a competitive advantage in established markets, preferably with a favorable, global trend as a support. And with the aforementioned in mind, Eli Lilly & Co. (NYSE: LLY) is worth a review. In general, analysts see a 5-7% revenue gain in FY2009 for Lilly, led by growth in sales of branded drugs Cymbalta, Humalog, Cialis, and Alimta. Meanwhile, sales of Zyprexa and Gemzar are likely to decline this year.
Further, gross margins should increase moderately. Also, cost restructurings will help offset a 30-cent-per-share earnings dilution from the $6.5 billion cash acquisition of ImClone, with the later also expanding Lilly's biologics manufacturing capacity. The First Call FY2009/FY2010 EPS estimates for LLY are $4.22 to $4.51.
The risks include a failure of Lilly to roll-out new drugs as scheduled, and competitive pressures that could hurt pricing power. Further, with a P/E of 16, LLY is not cheap, but the risk/reward remains favorable for this preferred, large cap pharmaceutical company.
Stock Analysis: Eli Lilly is a moderate-risk stock. Consider buying a 25% position in LLY now; then buy another 25% in three months, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your LLY position in the first half of 2009. Sell/Stop Loss if you were to buy shares in this company: $16.
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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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Reader Comments (Page 1 of 1)
6-09-2009 @ 3:10AM
Danny Haszard said...
Eli Lilly has been around for a century,and a proven performer.I am waiting to see how they resolve the costly Zyprexa saga.
Daniel Haszard www.zyprexa-victims.com