“Cut-to-the-Chase” Recommendations
- Week Beginning -
Monday, July 09, 2018

by Ian Harvey

IMPORTANT NOTE: There is no stop-loss or pre-determined sell price recommended – this is left to the discretion of the individual trader.


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Options Trade - - Eli Lilly and Co. (NYSE:LLY) Calls

Thursday, July 12, 2018

** OPTION TRADE: Buy LLY AUG 17 2018 90.000 CALL at approximately $0.95. Sell price is left to your own judgment.

(or alternatively : Place a pre-determined sell at $1.90.

Also include a protective stop loss of $0.40.)

Drug manufacturer Eli Lilly and Co. (NYSE:LLY) was named as a top pick among pharma stocks by J.P. Morgan Securities; and seeing optimism on the company's early product launch cycles.

Eli Lilly and Company is expected to report earnings on July 24, 2018 before the market opens. The report will be for the fiscal Quarter ending Jun 2018. Based on 5 analysts' forecasts, the consensus EPS forecast for the quarter is $1.34. The reported EPS for the same quarter last year was $1.11.

Eli Lilly last posted its quarterly earnings data on Tuesday, April 24th. The company reported $1.34 earnings per share (EPS) for the quarter, topping the Thomson Reuters’ consensus estimate of $1.13 by $0.21. Eli Lilly had a return on equity of 35.37% and a net margin of 4.82%. The company had revenue of $5.70 billion for the quarter, compared to analysts’ expectations of $5.51 billion. During the same period in the previous year, the firm posted $0.98 EPS. Eli Lilly revenue was up 9.0% compared to the same quarter last year. Equities analysts forecast that Eli Lilly And Co will post 5.15 EPS for the current fiscal year.

Over the past 7 days, Eli Lilly stock has increased in price by 2.55%. Looking backwards over the past quarter, these shares have gained 11.15%. Turning to look at the last 6 months, this stock has added 2.23% to its price. Since the beginning of the calendar year, this stock has moved up by 7.01%.

Influencing Factors

Eli Lilly could soar on the backs of several recently launched drugs. Aggregate sales of eight products launched since 2014 rose by 80% in the first quarter to $1.5 billion, and they've got a lot further to run.

The company's next-generation diabetes drug, Trulicity, is a big hit already, and its sales are still growing by leaps and bounds. In Q1, revenues from it rose 82% compared to the same period last year, giving the weekly injection drug on track an annualized run rate of $2.7 billion. There are around 29 million type 2 diabetics in the U.S. alone, a population that could drive sales of this treatment much higher.

Eli Lilly's Humalog franchise is still growing sales at a fair clip, but it's been 22 years since the mealtime insulin injection earned its first FDA approval. Cialis was a $2.3 billion drug last year, and it still provides 8.7% of the company's revenue, but its first-quarter sales fell 12% on year due to generic competition that will probably get more intense in the quarters ahead.

Moving Forward…..

Lilly recently took a bold step into immuno-oncology with its $1.6 billion acquisition of Armo Biosciences. The company was developing a new drug aimed at solid tumors that showed promise in early-stage trials. AM0010 doesn't have a catchy name yet, but it is in a pivotal trial, and could prove to be an important new treatment option for advanced-stage pancreatic cancer.

Lilly's late-stage pipeline also sports a migraine prevention drug that's under review at the FDA; if approved, it could rake in 10 figures annually at its peak.

Analysts and Hedge Funds Opinions

Eli Lilly has earned a consensus recommendation of “Buy” from the twenty-three brokerages that are currently covering the firm. One analyst has rated the stock with a sell rating, nine have given a hold rating and twelve have given a buy rating to the company. The average target price among brokerages that have covered the stock in the last year is $95.89.

Several analysts have recently commented on the company…..

  • HC Wainwright reiterated a “buy” rating on shares of Eli Lilly And Co in a report on Wednesday, April 18th.
  • Zacks Investment Research upgraded Eli Lilly And Co from a “hold” rating to a “buy” rating and set a $85.00 price objective on the stock in a report on Tuesday, April 3rd.
  • Jefferies Financial Group set a $90.00 price objective on Eli Lilly And Co and gave the stock a “buy” rating in a report on Friday, April 13th.
  • JPMorgan Chase & Co. set a $105.00 price objective on Eli Lilly And Co and gave the stock a “buy” rating in a report on Monday, February 26th.
  • Finally, Barclays set a $98.00 price objective on Eli Lilly And Co and gave the stock a “buy” rating in a report on Tuesday, May 22nd.

Summary

Eli Lilly has done a fine job of assembling a rookie product lineup with strong potential. With relatively little to drag it down, don’t be surprised if the company grows its top line at a double-digit percentage rate for the next several years.

Eli Lilly has a debt-to-equity ratio of 0.64, a quick ratio of 1.01 and a current ratio of 1.41. Eli Lilly And Co has a 52-week low of $73.69 and a 52-week high of $89.09. The company has a market cap of $94.86 billion, a PE ratio of 20.42, a price-to-earnings-growth ratio of 1.51 and a beta of 0.25.


Options Trade - - FireEye Inc (NASDAQ:FEYE) Calls

Tuesday, July 10, 2018

** OPTION TRADE: Buy FEYE AUG 17 2018 17.000 CALL at approximately $0.80 each TO $0.85. Sell price is left to your own judgment.

(or alternatively : Place a pre-determined sell at $1.60.

Also include a protective stop loss of $0.30.)

FireEye Inc (NASDAQ:FEYE), a standout in the red-hot cyber security sector, has just been issued an upgrade by analyst Andrew Nowinski of Piper Jaffray to "overweight" from "neutral," who also upped its price target by $3 to $20 -- a more than 25% premium to last Friday's close.

The analyst providing the coverage said FEYE stock is at an attractive entry point, and cited "significant improvement" in demand trends, as well as new pricing bundles, that will likely drive revenue growth in the third quarter. FireEye stock is poised to deliver "positive operating income and free cash flow starting in 3Q18."

Therefore, expect to see more upgrades and/or a round of short covering in the near future which could help the equity close the gap between its current price and the round $20 mark. Despite FEYE's nearly 18% year-to-date advance, 12 of 22 analysts still maintain a tepid "hold" recommendation; so plenty of scope for more positive input.

Due to this upgrade by Piper Jaffray the equity is now trading back above the key $16.50 region -- a 50% Fibonacci retracement of the rally from its February lows near $13.60 to its mid-April two-year high at $19.36 -- which helped support a handful of second-quarter pullbacks.

Last quarter CEO Kevin Mandia advised investors that in an effort to restart growth, FireEye is updating the "pricing and packaging" of the services it offers. According to Piper Jaffray, these efforts are bearing fruit. "Our channel contacts noted that the new pricing bundles are having a positive impact on overall demand trends," explains the analyst.

FireEye shares trade "well below the peer group average (3.2x EV/CY19E Sales vs 4.7x for the peer group)," and thus have room to grow.

The acquisition of Mandiant has helped FireEye to boost its endpoint security business. The deal allowed the company to gain access to Mandiant’s expert security consulting, incident response, and managed security services. Moreover, it serves more than one-third of the Fortune 100 customers.

Influencing Factors

FireEye continues to gain from the high proliferation of cloud technology across various organizations. The company’s flexible cloud delivery platform, which includes both public and hybrid clouds, continues to boost customer growth and drive billing for the company.

In addition, the company’s strategic alliance with Oracle’s (ORCL) cloud platform has helped the cybersecurity provider to make its cloud email solution available in Oracle’s SaaS (software-as-a-service). Going forward, FireEye also believes that it may partner with other cloud service providers to offer better service to its clients.

FireEye’s intelligence-based products help the company to stand out among competitors.

The company continues to gain intelligence from the front lines and its iSight Intelligence products. Its products help detect cyber-attacks throughout the world.

FireEye’s Helix user interface has been another differentiator, which integrates the third-party security platform, thus allowing better management. It offers a one-stop solution to its users, thereby improving the renewal rate of its contract with its clients.

FireEye’s email security solution has become the second most important business driver for the company after its network security platform.

Going forward, FireEye decided to spend less on research and development, sales, and marketing expenses, which in turn may improve margins in the upcoming quarters.

As well, the company’s partnership with Oracle (ORCL) may not only boost its delivery platform but also help the security firm to target the mid-tier market where it really lacks penetration.

Moving Forward…..

According to the consensus of analysts who track FireEye, the stock is likely to produce positive cash profits of $18 million this year, nearly triple that cash haul (to $53 million) in 2019, and more than double it again in 2020 (to $122 million). It will take another two years to double FCF again -- $253 million is anticipated in 2022.

Analysts expect that FireEye will post $201.36 million in sales for the current fiscal quarter. Twelve analysts have provided estimates for FireEye’s earnings, with the lowest sales estimate coming in at $200.70 million and the highest estimate coming in at $202.20 million. FireEye posted sales of $185.47 million in the same quarter last year, which suggests a positive year-over-year growth rate of 8.6%.

Also, equities research analysts predict that FireEye will report ($0.01) earnings per share (EPS) for the current fiscal quarter. Twelve analysts have issued estimates for FireEye’s earnings. FireEye reported earnings of ($0.04) per share during the same quarter last year, which would suggest a positive year-over-year growth rate of 75%.

The firm is scheduled to announce its next earnings results on Tuesday, August 7th.

Summary

This upgrade from Piper Jaffray is probably indicating that maybe the bottom is in for now for FEYE stock and therein lies a great opportunity for an options call.

Technically, this bounce should have much more upside to go. If the bulls succeed in breaking out of the lower-high trend, the upside target of this rally should take FEYE above $18.50 per share.

FireEye stock has gained 16% in the last six months. In the last one year, the stock has increased by 4.5%. Currently, FireEye stock is trading 22.2% higher than its 52-week low of $13.40 and 15.4% lower than its 52-week high of $19.60. The company has a current ratio of 1.71, a quick ratio of 1.70 and a debt-to-equity ratio of 1.27. The company has a market cap of $3.02 billion, a price-to-earnings ratio of -14.31 and a beta of 0.36.






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