Following Q3 Results, Here's Where Eli Lilly Investors' Focus Is Turning

A day after Eli Lilly and Co (NYSE: LLY) reported earnings and sales misses for the third quarter, Goldman Sachs reduced its revenue and EPS estimate by 1–3 percent for 2016–2025 based on the conservative expectations of Jardiance, Humalog and Portrazza. However, the firm thinks that these weaknesses could be partly offset by expenses control and new products such as Trulicity.

Analysts Jami Rubin and Divya Harikesh see a strong fourth quarter based on the marginal increase in sales outlook for the period while keeping the EPS range guidance the same. They believe the focus will be on the following two things:

1. EXPEDITION-3 trial results, expected before the current year ends.
2. FDA review of Jardiance CV indication. The regulator fixed action date of December 4.

The brokerage pointed out that estimates for Jardiance have already been reduced on slower ramp. Furthermore, additional downside has not been ruled out, according to Goldman Sachs, if the company fails to receive the expected indication.

Goldman Sachs commented in the research note, "We continue to view LLY as an attractive growth story, ex-Sola with significant new product contribution (~50 percent of 2020E sales) driving meaningful margin expansion. Near term, we expect all eyes on Sola and Jardiance events. Excluding Sola, we think LLY would trade at 18x P/E on 2017E EPS, implying $74 today. While the stock likely trades below this level if Sola fails, we are buyers, especially on weakness, to invest in the long-term margin expansion story."

Rating, Valuation

The brokerage has a Buy rating with a target price of $95, implying more than a 20 percent upside potential from current levels.

At last check, the stock was down 1.44 percent at $76.63.