Lilly (LLY) To Report Q4 Earnings: What's In The Cards?

We expect Eli Lilly and Company (NYSE:LLY) to beat expectations when it reports fourth-quarter and full-year 2017 results on Jan 31, before the market opens. Last quarter, the company delivered a positive earnings surprise of 1.94%.

Lilly’s shares have risen 16.6% in the past year while the industry recorded an increase of 29%.

Lilly’s earnings performance has been modest with earnings missing expectations in three of the last four quarters while beating the same in the remaining one, bringing the average positive surprise to 1.68%.

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

Factors to Consider

Like the previous couple of quarters, strong uptake of new products like Trulicity, Taltz, Basaglar, Cyramza, Jardiance and Lartruvo is likely to make up for the decline in sales of established products like Zyprexa, Alimta, Cialis, Strattera and Effient.

While Trulicity sales are likely to benefit from growth in GLP-1 and market share gains, Jardiance sales are expected to be driven by increased market share within the growing SGLT2 class.

Continued strong uptake outside the United States will continue to drive sales of Cyramza. Strong launch uptake is likely to drive sales of Basaglar, Taltz and Lartruvo. Please note that Taltz was approved for a new indication - active psoriatic arthritis (PsA) – in December 2017 - which can bring in some additional sales in the fourth quarter.

Meanwhile, the loss of exclusivity for Alimta, Cymbalta, Strattera, Effient, Axiron, Zyprexa, and Evista will continue to hurt volumes. Also, lower demand in the United States due to competitive pressure mainly from immuno-oncology agents is hurting Alimta sales in the country – a trend which is likely to be reflected fourth-quarter results.

Another new drug, Olumiant (baricitinib) was launched in select European countries and in Japan last year while it is under review in the United States. In the third quarter, strong launch uptake in Germany led to better sales of the drug. This trend is likely to be reflected in the soon-to-be reported quarter’s results. Lilly and partner Incyte Corporation (NASDAQ:INCY) plan to re-submit the new drug application (NDA) for Olumiant in United States by this month.

Some older products like Humalog, Trajenta and Forteo are also expected to do well.

Animal segment sales were hurt by global competitive pressure in the first three quarters of 2017 - a trend we are likely to see this time around as well. On the third-quarter conference call, management had said that it is exploring strategic alternatives for this business including a sale, merger or creating a separate company through an initial public offer. A decision regarding the same is expected to be made no later than the middle of this year, the company then said, and Lilly may ultimately opt to retain the business. Investors may look for an update related to the same on the Q4 conference call.

Earnings Whispers

Our proven model shows that Lilly is likely to beat on earnings because it has the right combination of two key ingredients. 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.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate is +0.47%. 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 #3. The combination of Lilly’s Zacks Rank #3 and positive ESP makes us confident of an earnings beat in the upcoming release.

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

Other Stocks to Consider

Here are some other large-cap health care stocks worth considering per our model. These have the right combination of elements to beat on earnings this time around:

Merck & Co., Inc. (NYSE:MRK) has an Earnings ESP of +1.06% and a Zacks Rank of 3. The company is scheduled to report fourth quarter earnings on Feb 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Astrazeneca (LON:AZN) PLC (NYSE:AZN) is slated to announce financial figures on Feb 2. The company has an Earnings ESP of +1.15% and is a Zacks #3 Ranked stock.

Zacks Top 10 Stocks for 2018

In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2018?

Last year's 2017 Zacks Top 10 Stocks portfolio produced double-digit winners, including FMC Corp (NYSE:FMC). and VMware which racked up stellar gains of +67.9% and +61%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.

Access Zacks Top 10 Stocks for 2018 today >>