After 17% Decline Since March Peak, is Eli Lilly a Buying Opportunity? (NYSE:LLY)

After gaining 75% over the previous one-year period and reaching its all-time high in March 2019, Eli Lilly’s share price pulled back more than 15% in the past 90 days. Thus, this could be an opportunity for investors to take a long position in anticipation of a potential recovery and long-term growth.

However, the stock’s outlook in the short term might be somewhat uncertain and interested investors should keep a close watch on the share price before making any decisions. Short-term moving averages are even indicating a possible extension of the current bullish trend, as the 50-day average dipped below the 200-day moving average in late June.

However, a look at an extended time frame paints a more optimistic picture. Over a 12-month period that began in March 2018, the share price gained 75% — represented by the green line in the graph below. This growth rate was significantly higher than the stock’s average growth rate trend over the past five years — represented by the orange line in the graph below.

Graph Source: Yahoo Financial

While Eli Lilly missed analysts’ earnings expectation by one penny for the last quarter of 2018, solid fundamentals and a streak of robust financial results — including the fact that the company beat analysts’ earnings expectations in the other three periods of the trailing 12 months — should not have caused a selloff. The more likely cause of the trend reversal is the 12-month runup at the higher growth rate.

Just before the trend reversal in March 2018, the stock’s Relative Strength Index (RSI) was approximately 67, which is very near the 70 level that many investors consider the lower limit of overbought territory. Therefore, the earnings miss in the last quarter of 2018, was probably just the trigger that played on overbought concerns and thus sent the share price lower.

However, as evidenced from the chart above, even after a pullback of more than 15%, the stock’s current price level is still right on the five-year average trendline. Furthermore, nearly four months of selling has driven the RSI below the neutral 50 level. As of July 15, 2019, the stock’s RSI was 48. While nowhere near the 30 index level that would indicate an oversold condition, the stock is currently in a much better position to reverse direction again and jump back on its long-term rising trend, especially after delivering positive financial results for the beginning of 2019.

Financial results

In its first financial report for 2019, which was released on April 30, 2019, Eli Lilly reported $5.1 billion in revenue, which corresponds to a 2.6% gain over the same period last year. While prices declined 3% over the past year, the company managed to deliver revenue growth on a 7% volume increase.

Gross margins increased one percentage point to 77.6% and the cost of sales were 2% lower, even with higher revenues. Furthermore, adjusted quarterly earnings increased to $1.24 billion, or $1.33 per diluted share. The earnings per share (EPS) outperformed last year’s figure and Wall Street analysts’ expectations of $1.31 per share by two cents or 1.56%.

In light of the first quarter results, Eli Lilly revised its earnings outlook for full-year 2019 by five cents. The adjusted EPS outlook increased from between $5.55 and $5.65 to the revised $5.60 to $5.70 range. A strong financial performance on the next quarterly report could be the incentive the stock needs to head higher. The company will announce its second-quarter 2019 financial results before markets open on Tuesday, July 30, 2019.

Share Price

The share price entered the trailing 12-month period on the uptrend that began in mid-March 2018 and reached its 52-week low of $88.48 on July 20, 2018. After gaining 48% above this 52-week low, the share price reached its new all-time high of $131.02 by March 26, 2019. As already indicated, the share price reversed direction after the March peak and has been declining towards its long-term uptrend average.

At the end of trading on July 12, 2019, the share price closed at $108.29. While more than 17% down from the March 2019 peak, the July 12 closing price was still 21.6% higher than it was one year earlier, 22.4% above the 52-week low from last July and 70% higher than it was five years ago.

Another incentive for considering the Eli Lilly stock is the company’s dividend income distributions. Combined with these dividend distributions that currently yield 2.4%, the company’s asset appreciation delivered a total return of almost 25% just over the past one-year period. Investors that took a long position three years ago were able to realize a 45% gain over that period. Lastly, with a total return of more than 90%, shareholders have almost doubled their initial investment over the past five years.

Eli Lilly and Company (NYSE:LLY)

Founded in 1876 and headquartered in Indianapolis, Indiana, Eli Lilly and Company develops, manufactures and markets pharmaceutical products through two segments — Human Pharmaceutical Products and Animal Health Products. The company offers products that treat diabetes, osteoporosis, human growth hormone deficiency, pediatric growth conditions and diverse types of cancer.

Additionally, the company makes products for the treatment of depression, anxiety, fibromyalgia and chronic pain. Eli Lilly provides additional products for the treatment of various disorders, such as schizophrenia, attention-deficit hyperactivity disorders (ADHD), obsessive-compulsive disorder (OCD), bulimia nervosa and panic disorders.

The company’s animal health portfolio includes various vaccines, cattle feed additives, protein supplements for cows, leanness and performance enhancers for swine and cattle, antibiotics, anticoccidial agents for poultry, as well as chewable tablets that kill fleas and prevent flea infestations and heartworm diseases.

As of March 31, 2019, the company has more than 33,000 employees globally and 57% of those employees work at the company’s operations outside of the United States. More than 7,500 of the company’s employees — or nearly one quarter of all employees globally – are engaged in research and development across research facilities in eight countries.

Additionally, Eli Lilly operates drug manufacturing facilities in eight countries. The company also conducts clinical research in 55 countries and markets its products in 120 countries around the world.

Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.