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What Eli Lilly's Job-Slashing Means for the Stock


Company attempts to get leaner and meaner.

I got home a bit early last night and played about an hour of soccer in the backyard with the kids. Man, I'm wiped out! Everything but my hair hurts.

Asian stocks ended mixed. The Hang Seng was down 0.31% but the Nikkei was up 0.15%. European stocks, however, were in negative territory early this morning. And here in the US, we're currently trading higher.

Eli Lilly (LLY):
Looks like Lilly is whipping out the axe. According to a release yesterday, it plans to: "Reduce the company's cost structure by $1 billion and lower global headcount to 35,000 by the end of 2011, excluding strategic sales additions in high-growth emerging markets and Japan."

Some thoughts:

1. I like the fact that it's looking to get leaner and meaner. It's also trying to reorganize some of the deck chairs in order to get its wares out into the public domain faster. That's a necessary thing in this environment and I like the sound of it, but that alone probably wouldn't be enough to draw me into the stock.

2. Also in the release: "In connection with today's announcement, the company confirmed its previous 2009 earnings per share guidance range of $4.14 to $4.24 on a reported basis, or $4.20 to $4.30 on a pro forma non-GAAP basis." Note though that the Street is at $4.28.

3. Overall, I'm not crazy about the situation. (Merck (MRK) is my favorite in pharma.) But I do like the company and I see an upside here. Keep in mind that it has a fairly peachy reputation and several high-profile products under its belt.

4. Additionally, the earnings estimates for this year and next year have been on the rise over the last 60 days. And it trades at under ten times this year's estimate.

Martha Stewart Living Omnimedia (MSO):
Add two eggs and a 2x4 and bake at 350 degrees for 45 minutes.

According to a Home Depot (HD) release yesterday: "The Home Depot, the world's largest home improvement retailer, and Martha Stewart Living Omnimedia, Inc. (MSLO), today announced an agreement to develop an exclusive Martha Stewart Living brand of home improvement products in select categories including Outdoor Living, Home Organization and Home Decor."

My two cents:

1. This could be a good thing down the road for Martha Stewart: Home Depot is pretty massive, and there's a big demand for outdoor wares. But exactly what this could mean in terms of dollars and cents down the line is a bit unclear at this point.

2. With regard to MSO, I'm glad it's north of that $5 mark. That may help improve its visibility.

3. I'd like to get the feel that profits are just around the corner. The red ink it's expected to generate both in 2009 and 2010 isn't a big turn-on.
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No positions in stocks mentioned.

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