The Zacks Analyst Blog Highlights: Raytheon, The Boeing, Eli Lilly, Teva and Dr. Reddy's

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Jul 11, 2012, 09:30 ET

CHICAGO, July 11, 2012 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Raytheon Company (NYSE:RTN), The Boeing Company (NYSE:BA), Eli Lilly (NYSE:LLY), Teva (NYSE:TEVA) and Dr. Reddy's (NYSE:RDY).

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Here are highlights from Tuesday's Analyst Blog:

Raytheon Gets $636M Contract

Raytheon Company (NYSE:RTN) was awarded a $636 million development and sustainment contract to provide the Exoatmospheric Kill Vehicle ("EKV") to The Boeing Company (NYSE:BA). The EKV is part of the Ground-based Midcourse Defense ("GMD") program, where Boeing is the prime contractor.

Under conditions of the contract, which extends through November 2018, Raytheon will provide EKV development, fielding, testing, system engineering, integration, configuration management, equipment manufacturing and refurbishment, and operation and sustainment.

EKV represents the centerpiece for the Missile Defense Agency's GMD as the intercept component of the Ground Based Interceptor, also known as GBI, which is designed to engage high-speed ballistic missile warheads in space.

Raytheon is one of the best-positioned companies among the large-cap defense players due to its non-platform-centric focus, as well as its strong order bookings and order backlog of more than $34 billion at the end of the first quarter of 2012.

Revenue and earnings growth continue to be driven by a strong presence in the areas of Intelligence, Surveillance and Reconnaissance; air & missile defense systems; border security; air traffic management; training and homeland security; and cyber security. Also, its non-platform centric focus insulates it from cancellation or deferral of any specific platform programs.

Looking forward, the company enjoys strong order bookings and order backlog, an improving balance sheet, and growing cash flow, besides operational improvements. Future growth will be driven by its focus on ISR unmanned systems, training, cyber security, Standard Missile-6, Patriot, Zumwalt and THAAD. The company presently retains a short-term Zacks #2 Rank (Buy).

This is, however, offset by apprehensions over future growth of the U.S. defense budget, the fate of high-cost programs, risks related to key project executions and order cancellations. Thus, over the longer run, we maintain our long-term Neutral recommendation on the stock.

Based in Massachusetts, Raytheon Company is one of the largest aerospace and defense companies in the U.S., with a diversified line of military products, including missiles, radars, sensors, surveillance and reconnaissance equipment, communication and information systems, naval systems, air traffic control systems, and technical services.

Good News for Eli Lilly

Eli Lilly (NYSE:LLY) will now enjoy an additional six months of exclusivity in the US for one of its lead products, Cymbalta. The US Food and Drug Administration (FDA) recently granted pediatric exclusivity to Cymbalta, which means that Cymbalta will be protected from generic competition in the US until December 2013 instead of June 2013.

Eli Lilly, however, pointed out that Cymbalta is not approved for use in children and the company does not intend to seek approval for this patient population.

Cymbalta, one of the key products in Eli Lilly's pipeline, is approved for a wide range of indications including the treatment of major depressive disorder and generalized anxiety disorder and the management of diabetic peripheral neuropathic pain and fibromyalgia. Cymbalta is also approved for the management of chronic musculoskeletal pain in people with chronic osteoarthritis pain or chronic low back pain.

Cymbalta, which accounted for 17.1% of Eli Lilly's total revenues in 2011, posted total sales of $4.16 billion in 2011. US sales were $3.2 billion in 2011.

Cymbalta continues to perform well with first quarter 2012 sales in the US coming in at $857.6 million. Given Cymbalta's current performance, the additional six month exclusivity period could result in sales of at least $1.6 billion in the US.

This bodes well for Eli Lilly, which currently faces a major patent cliff. Zyprexa, which posted sales of $4.62 billion in 2011, lost exclusivity in the EU and US in late 2011. Companies like Teva (NYSE:TEVA) and Dr. Reddy's (NYSE:RDY) have launched their generic version of the product and we expect a rapid erosion in Zyprexa sales. In fact, Eli Lilly expects Zyprexa sales to fall by more than $3 billion in 2012. First quarter 2012 Zyprexa sales fell 56% to $562.7 million.

We currently have a Neutral recommendation on Eli Lilly, which carries a Zacks #3 Rank (short-term Hold rating).

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