Long Term View of Eli Lilly (LLY) Stock: Bearish

Lilli (LLY) stock should rally short term, but long term indicators reveal a tepid outlook.
By Bruce Kamich ,

NEW YORK (TheStreet) -- Our charts and indicators on Eli Lilly (LLY) - Get Report still confirm our view that LLY can rally in the short run, but the longer term picture of LLY points to further declines.

In the chart of LLY above, we can see that prices have moved from sideways to lower over the past five months. The 50-day simple moving average has a downward slope, as does the On-Balance-Volume (OBV) line. The momentum study does not offer the bulls any support.

This chart, above, shows LLY testing its rising 40-week moving average. The OBV line is edging lower and the Moving Average Convergence Divergence oscillator is in a bearish configuration. We look for LLY to hold in an $85 to $75 range with a downward bias.

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 some important positives, 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, largely solid financial position with reasonable debt levels by most measures, increase in net income, expanding profit margins and notable return on equity. We feel its strengths outweigh the fact that the company shows weak operating cash flow.

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

  • LLY's revenue growth has slightly outpaced the industry average of 7.1%. 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 current debt-to-equity ratio, 0.53, is low and is below the industry average, implying that there has been successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.01, which illustrates the ability to avoid short-term cash problems.
  • The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Pharmaceuticals industry average. 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.
  • The gross profit margin for LILLY (ELI) & CO is currently very high, coming in at 82.71%. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, LLY's net profit margin of 16.12% significantly trails the industry average.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Pharmaceuticals industry and the overall market on the basis of return on equity, LILLY (ELI) & CO has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
  • You can view the full analysis from the report here: LLY

Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.

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