GILD Stock: Is Gilead Stock A Good Buy Ahead Of Q2 Earnings?

GILD Stock: Is Gilead Stock A Good Buy Ahead Of Q2 Earnings?

Gilead Sciences, Inc. (NASDAQ:GILD) is set to announce its Q2 earnings on July 26th. Will HCV/HIV Drug Commentary lift GILD stock Higher?

Gilead Sciences, Inc Is Gilead Stock A Buy Going Into Of Q2 Earnings
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Shares of Foster City, California based drugmaker Gilead Sciences (NASDAQ:GILD) have been in an uptrend over the last month or so. GILD stock closed the last trading session at a price of $74.39 a share, up 3.88% for the year. Gilead stock price has underperformed the broader market this year, with the S&P 500 (INDEX:SPAL) up by 10.3% in the same timeframe. However, what’s interesting is the fact that Gilead stock price is up by nearly 15% from its June 16 close of $64.12 a share. That’s a reversal of a longer term downtrend the stock was caught up in for the past 2 years. With the stock having printed a low, will the Q2 2017 earnings announcement lift Gilead stock even higher?

Gilead Q2 2017 Analyst Estimates

The current Wall Street consensus expects Gilead to report earnings per share of $2.15 on revenue of $6.37 billion for Q2. The current estimates imply an 18.1% year-over-year deceleration in the top line and a 30% drop in earnings over the comparable year ago quarter. A top line/earnings decline this quarter will mark the fifth consecutive quarter of decline for the John Milligan led drugmaker. The declines can be traced back to the deceleration in the company’s HCV business, which was earlier the bread and butter product for the company. However, the HCV segment could be in for some relief, something we will come back to shortly.

The EPS estimates have steadily climbed higher, up from consensus of $2.12 30 days ago, which was a reversal of the trend over the preceding 60 days which saw the EPS consensus drop from $2.14 to $2.12 a share. The increasing optimism on Wall Street is also reflected in the Full Year EPS consensus, which has risen from $8.25 to $8.42 over the last 90 days.

Gilead Earnings History And Q2 Earnings Whisper

Gilead has a decent record of trumping analyst’s EPS estimates, having beaten the EPS consensus in 5 out of the last 8 reported quarters.” On the revenue front though, the company has missed consensus number in 4 out of the last 8 quarters. More recently, Gilead has beaten earnings estimates in 2 out of the last 4 reported quarters while managing to beat top line consensus only once in the last 4 quarters. The current earnings whisper number expects Gilead to report EPS of $2.18 a share, implying a 3 cent beat. The case for an earnings beat was recently reiterated by Guggenheim analyst Tony Butler, who believes that Gilead will trump wall street consensus on both the top line as well as bottom line.

A Support For Falling HCV Revenue.

As we have pointed out earlier, the falling HCV (Hepatitis C) revenue has been the cause of the decline in Gilead revenues. The HCV revenues were down 22.5% YoY in FY 2016, coming in at $14.8 billion and contributing nearly 50% of total product sales. In Q1 2017, the drop became steeper with a 39.5% YoY drop in HCV revenue. However, the steep drop in HCV revenue has also meant that the segment contribution has fallen with each successive quarter, down to 40% of product revenue in Q1 2017. Hence, the drop in HCV revenue will have a smaller impact on Gilead’s performance in the quarter’s going ahead.

In addition, there were some recent encouraging developments on this front, with Vosevi, Gilead’s triple combination treatment for chronic Hepatitis C recently receiving FDA approval. The addition of Vosevi to Gilead’s HCV drug portfolio should help boost the HCV revenue. The fact that nearly 3.2 million people in the United States suffer from chronic Hep C, Vosevi could bring in significant incremental HCV revenue since it is targeted at patients who do not respond to current treatment. To put it another way, Vosevi approval could bring some much-needed relief to Gilead stock investors.

A Boost For HIV Revenue

The Vosevi approval was followed by more encouraging news, this time for Gilead’s HIV revenues. Gilead recently announced that its fixed dose HIV drug combination of Bictegravir (BIC) with Emtricitabine/Tenofovir Alafenamide (FTC/TAF) has proved to be as effective as regimens containing rival GlaxoSmithKline (NYSE:GSK) Dolutegravir. According to Dr. Paul Sax, MD, Clinical Director of the Division of Infectious Diseases at Brigham and Women’s Hospital, Boston, Professor of Medicine at Harvard Medical School and lead author of Study 1490 “These data reinforce the safety and efficacy profile consistently seen in other trials evaluating regimens based on the FTC/TAF combination. These results suggest that the combination of bictegravir with FTC/TAF has the potential to be appropriate for a broad range of HIV patients, including those with mild to moderate renal impairment.” This comes closely on the validation of the same treatment regimen by the European Medicines Agency earlier this month. Given the fact that HIV is a chronic disease (patients need to take medication lifelong), these approvals/clinical trials could help boost Gilead’s HIV revenue, which is taking up the mantle of being the company’s growth engine following the peak in HCV sales.

Summary

Gilead is set to report its Q2 2017 earnings on July 26th, after the market close. Recent EPS trends and the earnings whisper imply that the company is setting up for a earnings beat. However, more than the headline numbers, investors should keep a close watch on the HCV/HIV commentary following the recent developments on both these fronts.

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