Eli Lilly (LLY) has been one of the most popular stocks among Zacks.com visitors recently, so it is a good idea to take a look at some factors that could impact the stock's near-term performance.
Over the past month, shares of this pharmaceutical company have risen +18.4% compared to a +1.5% gain for the Zacks S&P 500 Composite Index. The Zacks Large Cap Pharmaceuticals industry, which Lilly belongs to, has risen 6.2% during that period. The big question here is, what is the direction of this stock going forward?
While media reports or rumors of major changes in a company's business prospects usually influence the movement of that company's share price, leading to immediate price movements, there are always certain fundamental factors that ultimately drive a buy-and-hold decision.
Earnings forecast revision
At Zacks, we evaluate changes in a company's future earnings estimates above all else because we believe the present value of future earnings streams determines the fair value of a stock.
It essentially looks at how sell-side analysts covering the stock are revising their earnings forecasts to reflect the impact of the latest business trends. As a company's earnings forecasts rise, so does the fair value of its stock. If the fair value is higher than the current market price, investors will be interested in buying the stock, driving the share price up. This is why empirical studies have shown a strong correlation between trends in earnings forecast revisions and short-term stock price movements.
For the current quarter, Lilly is expected to post earnings of $4.35 per share, which would represent a +4,250% change from the year-ago period. The Zacks Consensus Estimate has changed +13.1% within the past 30 days.
The consensus revenue estimate for the current fiscal year is $15.77, indicating a change of +149.5% year over year. This estimate has changed +20% in the past 30 days.
Looking at the next fiscal year, the consensus earnings estimate is $22.79, representing a +44.5% change from what Lilly was expected to report a year ago. Over the past month, estimates have changed +17.3%.
The Zacks Rank, our proprietary stock rating tool that has an impressive outside-audited track record, effectively harnesses the power of earnings estimate revisions and is a more reliable indicator of near-term stock price movements. The magnitude of the recent change in the consensus estimate, along with three other factors related to earnings expectations, has earned Lilly a Zacks Rank #2 (Buy).
The story continues
The chart below shows the evolution of the company's consensus EPS estimates over the next 12 months.
12 Month EPS
Projected Revenue Growth
A company's earnings growth is arguably the best indicator of a company's financial health, but nothing happens if the company can't grow earnings. It's nearly impossible for a company to grow its earnings without growing its revenue over the long term. Therefore, knowing a company's earnings growth potential is very important.
For Lilly, the consensus revenue estimate for the current quarter is $11.9 billion, indicating a change of +25.3% year-over-year. For the current and next fiscal years, estimates of $45.86 billion and $57.76 billion indicate changes of +34.4% and +26%, respectively.
Last reported results and surprise history
Lilly reported revenue of $11.3 billion in its most recent quarter, up 36% from the same period a year ago. EPS for the period was $3.92, up from $2.11 a year ago.
Compared to the Zacks Consensus Estimate of $9.83 billion, reported revenues represented a surprise of +14.99%. EPS surprise was +48.48%.
The company has beaten consensus EPS estimates in each of the last four quarters, and has surpassed consensus revenue estimates three times during that period.
evaluation
No investment decision can be made efficiently without taking into account stock valuation. Whether a stock's current price properly reflects the intrinsic value of its business and the company's growth prospects is a key factor in determining future stock price movements.
Comparing the current value of a company's valuation multiples such as Price to Earnings (P/E), Price to Sales (P/S) and Price to Cash Flow (P/CF) with the company's historical values helps in determining whether the stock is fairly valued, overvalued or undervalued, while comparing a company with its peers on the basis of these parameters gives a good sense of the fairness of the stock's valuation.
The Zacks Value Style Score, a part of the Zacks Style Scores system, evaluates both traditional and non-traditional metrics, categorizes stocks into five groupings from A to F (A is better than B, B is better than C, etc.) to help identify whether stocks are overvalued, fairly valued or temporarily undervalued.
In this regard, Lilly has received a D rating, indicating that it is trading at a premium to its peers. Click here to see the values of some of the valuation metrics that drove this rating.
Conclusion
The facts discussed here, and many other information on Zacks.com, may help you decide whether the market buzz surrounding Lilly is worth following, although the company's Zacks Rank #2 suggests it has the potential to outperform the overall market in the near term.
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Eli Lilly and Company (LLY): Free Stock Analysis Report
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