Lilly's stock meanders, but remains a Buy

Posted Oct 1st 2009 4:40PM by Joseph Lazzaro
Filed under: Lilly (Eli) (LLY), Stocks to Buy

Eli Lilly & Co. (NYSE: LLY) stock has unexpectedly meandered since the June 8, 2009 Buy recommendation at a price of $34.10, but the aforementioned probably represents selected investor jitters about the likely, federal health care reform legislation.

Ignore those jitters. The major components of health care reform have not been determined as of September 30, 2009, but the pharma calculation remains the same as it was in June. The legislation will be net-positive for major pharmaceutical companies, under the thesis that there will be 30-45 million more U.S. residents regularly - as opposed to sporadically - accessing health care services over the next decade, not including population growth.

Hence, I'm Reiterating my Buy rating for Lilly. Look for Lilly to post a 5-7% revenue gain in F2009, led by growth in sales of branded drugs Cymbalta, Humalog, Cialis, and Alimta. Meanwhile, sales of Zyprexa and Gemzar are likely to decline.

Further, gross margins should increase moderately. Also, cost restructurings will help offset a 30 cents per share earnings dilution for the acquisition of ImClone. The First Call FY2009/FY2010 EPS estimates for LLY are $4.28 to $4.58.

Stock Analysis: Eli Lilly & Co. is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 50% 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 75% of your LLY position before December 2009. Sell/Stop Loss if you were to buy shares in this company: $16.

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)

10-03-2009 @ 2:24AM

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.

Great news that Eli Lilly is posting profit,as a Zyprexa damage claimant who got diabetes from it I know that Lilly can afford to pay me my settlement.

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Daniel Haszard http://www.zyprexa-victims.com