The Zacks Analyst Blog Highlights:Cummins, Eli Lilly, Bristol-Myers Squibb, Merck and Novo Nordisk

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Jun 25, 2013, 09:30 ET

CHICAGO, June 25, 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 Cummins Inc. (NYSE:CMI-Free Report), Eli Lilly and Company (NYSE:LLY-Free Report), Bristol-Myers Squibb (NYSE:BMY-Free Report), Merck (NYSE:MRK-Free Report) and Novo Nordisk (NYSE:NVO-Free Report).

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Here are highlights from Monday's Analyst Blog:

Cummins Cut to Underperform

We have downgraded Cummins Inc. (NYSE:CMI-Free Report) to Underperform from Neutral based on the weaknesses in mining, oil & gas, and in the power generation markets. The weakness may adversely affect the results of the company. In addition, the company reported a dismal first-quarter 2013 performance.

Why the Downgrade?

On Apr 30, Cummins posted a sharp 39.5% fall in earnings to $1.44 per share in the first quarter of 2013 from $2.38 in the same quarter of 2012 (all excluding special items). Earnings also missed the Zacks Consensus Estimate of $1.86. Lower earnings were attributable to weak demand in the company's most major geographies and end markets.

Revenues in the quarter dipped 12% to $3.9 billion, which was marginally lower than the Zacks Consensus Estimate of $4.0 billion. Revenues in North America dropped 15%, while international revenues decreased 10% during the quarter.

Following the release of the first quarter results, the Zacks Consensus Estimate for 2013 decreased 10.4% to $7.84 per share. The Zacks Consensus Estimate for 2014 dropped 6.2% to $9.59 per share. Due to the downward estimate revisions, Cummins retains a Zacks Rank #5 (Strong Sell).

Cause for Concern

We are concerned about the weak construction market as it adversely affects Cummins' heavy- and medium-duty trucks sales. The company's heavy- and medium-duty trucks constitute 53% of its portfolio, of which 47% is based in the U.S.

In addition, weaknesses in mining, oil and gas and power generation markets are challenging for the Cummins' Engine segment. Based on these, Cummins anticipates revenues to be flat to down 5% in full year 2013.

Data on Lilly Diabetes Drug

Eli Lilly and Company (NYSE:LLY-Free Report) recently provided encouraging data on its diabetes candidate, dulaglutide. Dulaglutide is a long-acting glucagon-like peptide 1 (GLP-1) receptor agonist being developed as a once-weekly treatment for type II diabetes.

The company presented detailed safety and efficacy data from three phase III AWARD trials. Dulaglutide 1.5 mg was found to be superior to placebo and Bristol-Myers Squibb's (NYSE:BMY-Free Report) Byetta (exenatide), metformin and Merck's (NYSE:MRK-Free Report) Januvia (sitagliptin) in AWARD-1, AWARD-3, and AWARD-5, respectively, in the reduction of HbA1c levels.

Moreover, a higher percentage of patients in the dulaglutide arm achieved an HbA1c goal of less than 7% versus all active comparators. Patients in the dulaglutide arm also showed sustained weight loss during the course of the trials. While weight loss was significant compared to Januvia in AWARD-5, it was similar to Byetta and metformin in AWARD-1 and AWARD-3, respectively.

Hypoglycemia rates were also low in the dulaglutide arms. All these data were presented at the American Diabetes Association (ADA).

Eli Lilly had presented positive top-line data on dulaglutide from the AWARD-2 and AWARD-4 studies earlier this year.

Results from the AWARD program will be used to support dulaglutide regulatory filings, which are scheduled for this year.

Although we are encouraged with the data on dulaglutide, we note that the GLP-1 market is getting pretty crowded. While approved products include Novo Nordisk's (NYSE:NVO-Free Report) Victoza and Bristol-Myers' Bydureon and Byetta, other big pharma companies also have GLP-1 candidates in late-stage development.

Eli Lilly currently holds a Zacks Rank #3 (Hold). The biggest near-term challenge for Eli Lilly will be to replace the revenues that will be lost to generic competition now that Zyprexa has lost US and EU exclusivity. The generic threat will continue to pose challenges for Eli Lilly with Cymbalta slated to lose patent protection in late 2013 and Evista in 2014.

On the flip side, the Animal Health business and the diabetes franchise should provide some downside support. We are also pleased to see Eli Lilly pursuing small acquisitions and in-licensing deals to boost its pipeline.

Novo Nordisk currently looks attractive with a Zacks Rank #2 (Buy).

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