Trade of the Day: LLY Stock Suffers Major Breakdown

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Eli Lilly and Co (LLY) This leading prescription drug maker reported better-than-expected earnings and raised its guidance on Thursday. Q3 EPS rose 22% from a year ago to 89 cents a share, excluding one-time items. Analysts had been expecting 74 cents.

But revenue of $4.96 billion fell short of some estimates. Like Pfizer Inc. (PFE), Thursday’s Trade of the Day, Eli Lilly is facing serious currency headwinds and is losing patent protection on key drugs.

S&P Capital IQ Equity Research estimates that currency problems will have a 5% adverse impact on sales this year. The firm lowered its 12-month price target for LLY stock by $6 to $82 following the third-quarter earnings report.

On Oct. 12, the company announced it was ending development of an atherosclerotic drug that failed to meet efficacy. The termination will result in a $90 million charge in Q4.

The January acquisition of the animal health unit of Novartis AG (ADR) (NVS) should contribute to earnings this year. However, competitive pressures in the pharmaceutical industry are high, and the development of new drugs averages about 10 years.

LLY stock broke the neckline of a head-and-shoulders formation Tuesday on high volume. It also plowed through its 200-day moving average at $77.88.

This is a major breakdown and gives a downside target of $65. This is calculated by subtracting the neckline at $78 from the pattern’s high at about $92, which equals 14 points. We then subtract that from the neckline to get $64.

Sell LLY stock if you own it or write protective options against your position. Speculators should attempt to sell shares short at $76 or higher with a trading target of $65 for a potential gain of more than 14%. Enter a stop-loss order at $82.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/10/eli-lilly-and-co-lly-stock-trade-of-the-day/.

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