Eli Lilly (LLY) reported fourth-quarter results today that impressed value investors. The pharmaceutical company reported total revenue of $6.047 billion, a decrease of 2 percent compared with the fourth quarter of 2010. In addition, net income and earnings per share decreased to $858.2 million and $0.77, respectively, compared with fourth-quarter 2010 net income of $1.170 billion and earnings per share of $1.05. The decreases in net income and earnings per share were primarily driven by lower operating income.

More importantly, the company has re-affirmed 2012 guidance and expects full-year earnings per share to be in the range of $3.10 to $3.20 on both a reported and non-GAAP basis. Shares are currently trading at $39 making the forward PE about 12X.

Value investors have also been attracted to the 5.2% dividend yield. When U.S. Treasuries are now yielding only 1.9%, LLY's dividend is a huge premium to the bond market.

LLY also has a clean AA-rated balance sheet with little debt.

However, LLY also offers speculative upside potential in the way of an Alzheimer drug called Solanezumab.

Tim Anderson, an analyst at Sanford, commented that "LLY and several of its competitors are willing to spend hundreds of millions of dollars on what is essentially a massive lottery ticket. If their drugs are successful in delaying the progression of Alzheimer’s disease, they could end up making Lipitor look like a mid-sized product.”

However, it should be noted that the potential for solanezumab's success are only about 15%.

Nonetheless, in a low-rate environment it appears that LLY is a stable dividend stock with a small chance at huge upside.

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