Eli Lilly (LLY) Stock Could Rally Short Term, Long-Term View Bearish

We are still above the zero line, but the indicators are "ganging up" on Eli Lilly (LLY).
By Bruce Kamich ,

NEW YORK (TheStreet) -- We are conflicted. The short-term chart of newly initiated Action Alerts PLUS holding Eli Lilly (LLY) - Get Report suggests further gains into the end of the year, but the longer-term picture for LLY indicates that declines might lie ahead.

The short-term view of LLY, above, presents some negatives. We can see, for instance, that LLY broke support around $79, but it has managed to rally back to its 50-day moving average. The On-Balance-Volume (OBV) line peaked in July and has been eroding since. It would be nice to cite a bullish divergence, but we don't have one vs. the momentum study. What LLY has going for it is a pretty strong fourth quarter rally for the overall market and a biopharmaceutical industry that could manage to carry it along for a rally towards $90.

However, the longer-term perspective on LLY, above, points to problems ahead, in our opinion. LLY had been climbing nicely above the rising 40-week moving average until now, and has begun testing that average. A close below the 40-week moving average at some point would be a negative. Note that the OBV line has been declining on this timeframe for four months. Last, the moving average convergence divergence (MACD) oscillator has generated a bearish crossover and is declining. We are still above the zero line, but the indicators are "ganging up" on LLY.

Short-term traders can try the long side of LLY for as far as it goes with a trailing sell-stop, but older longs should look to be scale-up sellers.

TheStreet Ratings team rates LILLY (ELI) & CO as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

We rate LILLY (ELI) & CO (LLY) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, increase in net income, solid stock price performance, growth in earnings per share and expanding profit margins. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • LLY's revenue growth has slightly outpaced the industry average of 3.4%. Since the same quarter one year prior, revenues slightly increased by 1.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Pharmaceuticals industry. The net income increased by 59.7% when compared to the same quarter one year prior, rising from $500.60 million to $799.70 million.
  • Powered by its strong earnings growth of 59.57% and other important driving factors, this stock has surged by 25.20% over the past year, outperforming the rise in the S&P 500 Index during the same period. Looking ahead, the stock's sharp rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
  • LILLY (ELI) & CO reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, LILLY (ELI) & CO reported lower earnings of $2.23 versus $4.31 in the prior year. This year, the market expects an improvement in earnings ($3.44 versus $2.23).
  • The gross profit margin for LILLY (ELI) & CO is currently very high, coming in at 75.49%. Regardless of LLY's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, LLY's net profit margin of 16.12% compares favorably to the industry average.
  • You can view the full analysis from the report here: LLY
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