Challenging Times for Eli Lilly

The following excerpts explain why Zacks senior pharma industry analysts Jason Napodano, CFA and Brian Marckx, CFA remain neutral on Eli Lilly and Company (LLY), the global healthcare company:

'The company is entering a challenging period, brought about by recent pipeline disappointments, most notably surrounding anti-platelet drug, Prasugrel. Although we believe the underlying fundamentals of the company remain solid, the recent pipeline setbacks and lack of clarity surrounding Prasugrel will likely limit the upside to the stock. We also believe that sales of Zyprexa will begin to decline in 2008 as the generic Risperdal eats into its market share.

'We see little movement in the stock until the above issues are answered. While we have removed Prasugrel from our model which significantly effects our prior earnings growth beginning in 2009, we continue to look for 2008 earnings of $3.95, at the higher end of management's guidance of $3.85 to $4 per share. Management remains optimistic that Prasugrel will make it to the market although we think this is unlikely without significantly more data to support the net benefits of the drug.

'The company beat our expectations in the first quarter by $0.05, by $0.07 in the second quarter and by another $0.05 in the third quarter and management followed suit by raising guidance each time. Fourth quarter results beat our forecast by $0.02 and full-year EPS came in at the top-end of management's guidance. For 2008 Lilly expects to grow EPS from $3.85 to $4 or 8.5% to 12.7% over 2007 earnings.

'While we've been mildly surprised by the recent performance, for the reasons that we've discussed above, we don't believe the stock will outperform. We rate the stock a Hold with a $55 price target, representing 13.9x our 2008 EPS estimate of $3.95.'

At This Point, Hold Countrywide

The following excerpts explain why Zacks financial sector analyst Neena Mishra remains neutral on Countrywide Financial Corporation (CFC), the financial services company:

'Fourth quarter '07 loss of $0.79 per share was substantially higher than our and consensus estimates. Credit quality further worsened during the quarter, with the NPAs rising 89% sequentially to 2.90% of total assets. On the positive side, the insurance segment earnings were up 15% sequentially and the capital market segment returned to profitability.

'Before the market opened on January 29, 2008, CFC released its 4Q07 financial results. The quarter resulted in a net loss of $422 million or $0.79 per diluted share as compared to a net loss of $1.2 billion or $2.85 per diluted share during 3Q07 and an income of $622 million or $1.01 per diluted share during 4Q06.

'We anticipate the credit and liquidity issues to continue to impact the earnings for the coming quarters and hence, are reducing our FY08 estimate to $0.75 per share. Our six-month target price of $6.25 per share is based on the deal with Bank of America (BAC), which is expected to close in 3Q08 and our recommendation on the shares remains unchanged at Hold.'

Remaining Up on Churchill Downs

Reiterating his bullish case for Churchill Downs, Inc. (CHDN), Zacks leisure and recreation industry analyst Sean P. Smith explains why the future looks bright for the leisure and gaming company:

'On January 29, voters in Florida's Miami-Dade county passed a measure that will allow slot machine gaming to be introduced at the county's three pari-mutuel wagering facilities, including Churchill's Calder Race Course. Shares of Churchill have declined approximately 8% during the last four days, likely attributable to the uncertainty related to the Miami-Dade election. With this uncertainty behind us, we believe the shares should trade higher, reflecting the company's new business opportunities going forward.

'We believe that a proper valuation of Churchill's shares should reflect not only the value of the current operations, but also the potential for increased revenue and earnings should alternative gaming be extended to additional company properties.

'In addition, the company's low leverage and significant real estate holdings should be taken into account. The shares are currently trading at approximately 35x our 2007 EPS estimate of $1.32, and 26x our 2008 EPS estimate of $1.75. We note that we project 2008 EPS growth of roughly 33% over 2007.

'Additionally, the shares are currently trading at approximately 10x our 2008 EBITDA estimate. Our 12-month price target of $60 per share equates to approximately 34x our 2008 EPS estimate and approximately 12.8x our 2008 EBITDA estimate. While these multiples represent premiums to the current peer group average, we believe that such a premium is appropriate. As such, we reiterate our Buy rating on shares of CHDN.

Downgrading Dr.