You may be shocked that such a powerful income investment like Eli Lilly (NYSE:LLY) would be on the sell list. Granted, Lilly boasts a nearly 5% yield.
Of course, shares are also off 30% since 2007. And more telling is that while the market has built a decent recovery since mid-2009, LLY has returned less than 3% annually since rebounding from its bear market lows. At the same time, the dividend has been frozen since 2009 at 49 cents a quarter without a single increase.
So what does Wall Street expect in the future? More of the same, it looks like. According to Factset research, 26% of analysts following the stock rate it a sell and only 16% rate it a buy. The most recent was MKM Partners, which initiated coverage on Dec. 20 at sell.
What’s more, out of 14 folks who set price targets on the stock, the highest of them all is $43 — a mere 7% up from here. The median target is $37.68, and the mean is $38 according to Thomson/First Call reports. The low target? That’s $33 from MKM, the most recent firm to weigh in.
It’s not a mystery why folks are bearish. Patent expirations loom and are expected to suck billions in revenue out of the company. Fiscal 2011 earnings are set to roll back slightly and then lurch down 25% in fiscal 2012.
Eli Lilly is a behemoth that’s certainly not going bankrupt. But the writing is on the wall — sell this stock if you own it, and consider playing the downside by buying puts.