The Zacks Analyst Blog Highlights: Rogers, AAC Technologies Holdings, Eli Lilly, Sanofi and Novartis

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Jan 08, 2013, 09:30 ET

CHICAGO, Jan. 8, 2013 /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 Rogers Corporation (NYSE:ROG), AAC Technologies Holdings Inc. (OTC:AACAY), Eli Lilly and Company (NYSE:LLY), Sanofi (NYSE:SNY) and Novartis (NYSE:NVS).

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Here are highlights from Monday's Analyst Blog:

Rogers Corp Upped to Strong Buy

On January 5, Zacks Investment Research upgraded Rogers Corporation (NYSE:ROG) to a Zacks #1 Rank (Strong Buy).

Why the Upgrade?

Rogers Corporation has been witnessing rising earnings estimates on the back of improved third quarter 2012 results and strong outlook for the quarter ahead. Moreover, this producer of specialty materials and components delivered positive earnings surprises in 2 of the last 4 quarters with an average surprise of 21%. The long-term expected earnings growth rate for this stock is 13.5%

Rogers Corporation reported fiscal third-quarter (ended September 30) results on November 5, 2012. Earnings came in at 69 cents per share, beating the Zacks Consensus Estimate by 7.8%. Even though earnings declined on a year-over-year basis, there has been an improving trend so far in 2012 with the third quarter witnessing a 47% surge from the prior quarter and a whopping 165% increase from the first quarter of 2012.

The company's restructuring and streamlining activities, which include efficiencies in supply chain and manufacturing operations, cost reduction activities and headcount reductions contributed around $4.5 million during the quarter, ahead of the expected level of $3.0 million. The company expects better operating profit leverage on future sales growth given the lower cost structure now in place. Going forward, these initiatives are expected to help the company to counter weak market conditions.

For the fourth quarter, the company expects revenues between $129 million and $135 million. Compared to the year-ago quarter, the guidance projects annual sales growth of 2% to 7%. Earnings per share are expected between 69 cents and 79 cents, which suggests a year-over-year increase of 64% to 88%.

The Zacks Consensus Estimate for fiscal 2012 increased 7% to $2.18 per share as all the estimates were revised higher over the last 60 days. For fiscal 2013, half of the estimates were revised higher during the same period, lifting the Zacks Consensus Estimate by 1% to $2.84 per share. This suggests a year-over-year climb of 30.5%.

Other Stocks to Consider

Other stocks in the same industry with favorable Zacks Rank and worth considering are AAC Technologies Holdings Inc. (OTC:AACAY), which holds a Zacks #1 Rank (Strong Buy).

Encouraging EPS Outlook from Lilly

Late last week, Eli Lilly and Company (NYSE:LLY) provided its financial guidance for 2013 and commented on its 2012 guidance as well.

Regarding 2012 guidance, the company said that the impact of certain provisions of the American Taxpayer Relief Act of 2012 will be recognized in 2013 instead of 2012 as the enactment of the Act was completed earlier this year. These include the impact of the extension of the R&D tax credit for 2012. Eli Lilly said that the financial impact of the Act will be provided in details at its upcoming fourth quarter call on Jan 29.

The company continues to expect 2012 earnings in the range of $3.30 - $3.40 per share. The Zacks Consensus Estimate for 2012 is currently $3.36 per share, well within the company's guidance range.

Moving on to 2013, Eli Lilly expects to earn $3.75 - $3.90 per share on total revenues of $22.6 billion - $23.4 billion. Eli Lilly, which is currently going through a patent cliff with the loss of exclusivity on Zyprexa, will be losing US exclusivity on Cymbalta in Dec. While revenues will be impacted by the loss of Cymbalta exclusivity and the loss of the 15% royalty on exenatide sales, products like Humalog, Humulin, Cialis, Strattera, Forteo, Alimta, Cymbalta (outside the US), Effient, Tradjenta and Axiron, and the animal health segment should contribute to sales. Japan and emerging markets, especially China, should also drive sales.

Eli Lilly will continue working on containing costs and expects total operating expenses to remain flat or decline slightly from 2012 levels. While the company expects marketing, selling and administrative expenses to remain flat or decline from 2012 levels to $7.1 - $7.4 billion, R&D expenses are expected to remain flat or increase or 2012 levels to $5.2 - $5.5 billion. Eli Lilly currently has 13 candidates in late-stage development.

Meanwhile, the company maintained its mid-term guidance. From now through 2014, the company expects annual net income of at least $3 billion on revenues of at least $20 billion. Operating cash flow is expected to be at least $4 billion every year during this time period.

Eli Lilly said that it expects operating cash flows to be enough to fund capital expenditures of approximately $900 million, dividends (of about $2.1 billion), the new $1.5 billion share buyback program as well as anticipated business development activity. The company has already purchased shares worth $400 million and expects to complete the balance $1.1 billion buyback in 2013.

Our Take

Although Eli Lilly's 2013 revenue guidance was in-line with expectations (the Zacks Consensus Estimate currently stands at $23.3 billion), earnings guidance was above expectations (the Zacks Consensus Estimate is currently $3.73 per share). Share buybacks and cost control should help the company achieve its 2013 guidance despite the presence of generic competition for key products.

We currently have a Neutral recommendation on Eli Lilly, which carries a Zacks #3 Rank (Hold). Large-cap pharma companies that currently look better-positioned include Sanofi (NYSE:SNY) and Novartis (NYSE:NVS). All three companies carry a Zacks #2 Rank (Buy).

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