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Will Currency & Competition Hurt Lilly's (LLY) Q1 Earnings?

Eli Lilly and CompanyLLY is set to report first quarter 2016 earnings results on Apr 26 before the market opens. The company's performance has been impressive with earnings surpassing expectations in each of the last four quarters with an average positive earnings surprise of 13.63% during this period.

Let's see how things are shaping up for the company this quarter.

What Our Model Indicates

Our proven model does not conclusively show that Lilly is likely to beat estimates 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) to be able to beat earnings. That is not the case here as you will see below.

Negative Zacks ESP : The Earnings ESP , which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -1.18% since the Most Accurate estimate is 84 cents while the Zacks Consensus Estimate is 85 cents per share.

Zacks Rank #2 (Buy) : Lilly carries a Zacks Rank #2. Lilly's Zacks Rank #2 when combined with an ESP of -1.18% makes surprise prediction difficult.

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

Factors at Play

While currency and generic competition for some products will play an unfavorable role in the first quarter, another area of concern is lower volume in China. Growth is being impacted by government initiatives and policies and more hospitals and institutions are shifting to lower-priced generics. This situation is expected to continue in the near term.

Moreover, Alimta may continue to experience some softening in later lines of therapy (second line and beyond) reflecting the launch of Cyramza in the second-line setting as well as competition from immuno-oncology agents.

However, products like Trulicity, Cyramza, Humalog, and Trajenta should continue performing well. The second-line setting represents incremental opportunity for Cyramza. Revenues should also benefit from the takeback of North American rights for Erbitux.

Lilly could also see an uptick in Jardiance sales - the company and its partner Boehringer Ingelheim scored a big win with Jardiance succeeding in a long-term cardiovascular (CV) outcomes study. The highlight of the results was Jardiance's ability to actually reduce CV risk - an essential part of diabetes management. These study results are a huge positive for Lilly - with about 50% of deaths in type II diabetics resulting from CV disease, the addition of this data to Jardiance's label would lead to a major surge in sales.

Other drugs in Lilly's portfolio like Glyxambi and Synjardy could also benefit as both belong to the Jardiance family. While Glyxambi is a combination of Jardiance and Tradjenta, Synjardy combines Jardiance and metformin.

Alimta should continue doing well in the first-line setting and continuation maintenance for which it is being promoted.

Investors will also be focused on the performance of new products like cancer drug Portrazza.

Stocks That Warrant a Look

Here are some health care stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter.

BioMarin Pharmaceutical Inc. BMRN has an Earnings ESP of +18.61% and carries a Zacks Rank #3. It will be reporting results on Apr 28.

Amgen Inc. AMGN has an Earnings ESP of +5.47% and carries a Zacks Rank #3. It will be reporting results on Apr 28.

The Earnings ESP for Sanofi SNY is +4.17% and it carries a Zacks Rank #2. The company is scheduled to release results on Apr 29.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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