Will Generics Eat Into Eli Lilly’s (LLY) Q2 Earnings?

Eli Lilly and Company (LLY) is set to report second-quarter 2014 results on Jul 24. In the prior quarter, the company’s earnings were in line with the Zacks Consensus Estimate. Moreover, the company posted an average positive earnings surprise of 6.94% over the past four quarters.

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

Factors to Consider this Quarter

Revenues are expected to continue declining as several key products including Evista and Cymbalta are facing generic competition. Both Evista (down 38%) and Cymbalta (down 64%) revenues declined in the U.S. in the first quarter due to loss of exclusivity in Mar 2014 and Dec 2013, respectively.

Sales from the Animal Health division along with other products are expected to mitigate this loss to some extent. The company’s ongoing cost containment efforts should help aid the bottom line.

Earnings Whispers?

Our proven model does not conclusively show that Eli Lilly will beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Negative Zacks ESP: Eli Lilly has a -1.52% ESP. That is because the Most Accurate estimate stands at 65 cents while the Zacks Consensus Estimate is higher at 66 cents.

Zacks Rank: Eli Lilly’s Zacks Rank #3 (Hold) when combined with a negative ESP makes surprise prediction difficult.

We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks that Warrant a Look

Here are some companies you may want to consider as our model shows that these have the right combination of elements:

Endo International (ENDP) has an earnings ESP of +4.49% and carries a Zacks Rank #2. It is scheduled to report its second-quarter results on Jul 31.

Hospira Inc. (HSP) has an earnings ESP of +1.79% and carries a Zacks Rank #1. It is expected to report its second-quarter results on Jul 30.

The earnings ESP for Celgene Corporation (CELG) is +2.60% and it carries a Zacks Rank #2. The company is scheduled to release its second-quarter results on Jul 24.