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Will Eli Lilly's (LLY) Earnings Surpass Estimates in Q4?

We expect Eli Lilly and CompanyLLY to beat expectations when it reports fourth-quarter and full-year 2016 earnings results on Jan 31, before market opens.

So far this year, Lilly's share price has improved 1.7% as against a decrease of 1.6% for the Zacks-classified Large-Cap Pharma industry.

Lilly's earnings performance has been mixed with earnings surpassing expectations in two of the last four quarters, while missing in the other two, bringing the average negative surprise to 2.05%.

Eli Lilly and Company Price and EPS Surprise

Eli Lilly and Company Price and EPS Surprise | Eli Lilly and Company Quote

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

Factors at Play

New products likeTrulicity, Cyramza, Taltz and Jardiance supported the top-line in the third quarter. We expect the trend to continue in the fourth quarter as well.

However, sales of Alimta, Cymbalta and Zyprexa are likely to decline. Lower demand in the U.S. due to competitive pressure from immuno-oncology agents has mainly hurt Alimta sales. Meanwhile, the loss of exclusivity is affecting sales of Cymbalta and Zyprexa.

Further, we expect marketing, selling and administrative as well as R&D expenses to continue to increase, which will again exert pressure on margins.

We remind investors that in early Dec 2016, the FDA approved Lilly's request to add the cardiovascular (CV) indication to its type II diabetes drug Jardiance's label. With about 50% of deaths in type II diabetics resulting from CV disease, the latest data addition is expected to improve Jardiance's sales substantially.

Meanwhile, Basaglar - Lilly and partner Boehringer Ingelheim's follow-on insulin to Sanofi's blockbuster drug, Lantus- was launched in the U.S. in Dec 2016. Also, in the same month, Lilly announced the FDA approval of an extended-release formulation of its diabetes drug, Synjardy.

Meanwhile, in October, Lilly's pipeline candidate, olaratumab received accelerated approval in the U.S. to be used in combination with doxorubicin for the treatment of soft tissue sarcoma. The drug will be sold under the trade name Lartruvo. The company is also anticipating an approval for its rheumatoid arthritis candidate, baricitinib, this year, which would bolster its top line.

Though the positive impact of these regulatory updates will be negligible in the to-be-reported quarter, these should boost sales and profits significantly in 2017

This explains the better-than-expected financial guidance for 2017 provided by Lilly in Dec 2016.

Note that last week, Lilly announced that it has received a favorable ruling in a lawsuit against Teva Pharmaceutical Industries Limited TEVA related to the infringement of a vitamin regimen patent for Alimta by the U.S. Court of Appeals for the Federal Circuit. We expect management to provide further light on the issue at the fourth quarter conference call.

What Our Model Indicates

Our proven model shows that Lilly is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen and Lilly has the right mix.

Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate ($1.01 per share) and the Zacks Consensus Estimate (99 cents per share), is +2.02%. This is a meaningful indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank: Lilly has a Zacks Rank #2.

The combination of Lilly's favorable Zacks Rank and positive ESP makes us confident of an earnings beat in its upcoming release.

Conversely, the Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Other Stocks to Consider

Other stocks in the pharmaceuticals sector that have both a positive ESP and a favorable Zacks Rank are:

Merck & Co., Inc. MRK is expected to release results on Feb 2. The company has an Earnings ESP of +1.14% and a Zacks Rank #3. You can see the complete list of today's Zacks #1 Rank stocks here .

Vertex Pharmaceuticals, Inc. VRTX has an Earnings ESP of +400.0% and a Zacks Rank #3. The company is scheduled to release results on Jan 25.

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Eli Lilly and Company (LLY): Free Stock Analysis Report

Merck & Company, Inc. (MRK): Free Stock Analysis Report

Vertex Pharmaceuticals Incorporated (VRTX): Free Stock Analysis Report

Teva Pharmaceutical Industries Limited (TEVA): Free Stock Analysis Report

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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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