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Is Gilead (GILD) Poised for a Beat This Earnings Season?

Zacks Equity Research

A leader in the hepatitis C virus (HCV) space, Gilead Sciences Inc. GILD, is expected to beat expectations when it reports third-quarter results on Oct 26, after the market closes.

Gilead’s track record is pretty mixed, with the company beating estimates in two of the last four and missing in one two. Last quarter, the company beat expectations by 17.4%. Overall, the company recorded an average positive earnings surprise of 6.4%.

 

 

Gilead’s stock has gained 15.9% year to date against the industry's 11.7%. A strong performance in the third quarter will boost share price performance further.

Why a Likely Positive Surprise?

Our proven model shows that Gilead is likely to beat on earnings estimates this quarter. This is because it has the right combination of two key ingredients, a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold).

Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +0.23%. This is because the Most Accurate estimate is $2.09 while the Zacks Consensus Estimate is pegged a penny lower at $2.08. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Gilead currently carries a Zacks Rank #3. The combination of Zacks Rank #3 and a positive ESP makes us confident of an earnings beat.

Conversely, Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Gilead Sciences, Inc. Price and EPS Surprise

 

Gilead Sciences, Inc. Price and EPS Surprise | Gilead Sciences, Inc. Quote

 

Factors at Play

Concurrent with the second-quarter earnings call, Gilead updated its annual guidance. Based on a better-than-expected performance in the first half of 2017 specifically in the United States, the company raised its guidance for 2017.  Gilead now expects net product sales in the range of $24.0-$25.5 billion, up from $22.5-$24.5 billion provided earlier. Non-HCV product sales are projected between $15.5 and $16.0 billion (earlier projection: $15 million and $15.5 billion). HCV product sales are projected between $8.5 billion and $9.5 billion (earlier projection: $7.5 billion and $9.0 billion). Adjusted R&D expenses and adjusted SG&A expenses are now projected in the range of $3.2-$3.4 billion and $3.2-$3.4 billion, respectively. Adjusted product gross margin is expected in the range of 86-88%. Earnings per share are now projected around 86-93 cents (earlier projection: 84-91 cents).

Strong HIV performance and other antiviral product sales are being driven by continued uptake of tenofovir alafenamide (TAF) based products — Genvoya, Descovy and Odefsey. We expect the trend to continue in the third quarter as well. Genvoya has already become the most prescribed regimen for both treatment-naïve and switch patients since its launch. This should drive the non-HCV product sales.  The TAF-based regimens now represent 51% of total Gilead HIV prescription volume following the launch of Genvoya and Odefsey and Descovy in 2016.  Specifically, Genvoya is now the company’s bestselling HIV product with a treatment-naïve patient share of 41%. The Zacks Consensus estimate for Genvoya stands at $923 million. Strong uptake for Truvada for use in the pre-exposure prophylaxis setting is also expected to boost sales.  However, Gilead will lose exclusivity for Viread in 2017 in some countries outside the United States which might impact sales.

Meanwhile, the HCV franchise continues to be under competitive and pricing pressure leading to a massive decline in Harvoni and Sovaldi sales. Harvoni and Sovaldi has been facing competition from AbbVie Inc.’s ABBV Viekira Pak and Viekira XR among others. Higher discounts and payer mix continue to impact sales adversely. Despite this, the company increased its guidance for HCV franchise.  The Zacks Consensus Estimate for lead HCV drug Sovaldi and Harvoni currently stand at $24.6 million and $1.0 million for the third quarter. The HCV portfolio received a major boost when Epclusa gained approval in 2016. The FDA also approved Vosevi tablets as a single-tablet regimen (STR) for the re-treatment of chronic HCV infection in adults.

On the other hand, we expect the company to increase its guidance further for the incremental contribution from the recent Kite Pharma acquisition. The FDA recently approved its chimeric antigen receptor T-cell (CAR-T) therapy, Yescarta (axicabtagene ciloleucel), for the treatment of refractory aggressive non-Hodgkin lymphoma, which includes DLBCL, transformed follicular lymphoma and primary mediastinal B-cell lymphoma.  We expect the management to throw more light on the same during the third-quarter’s call. Investors are also likely to keep an eye on other pipeline updates.

Other Stocks Poised to Beat Estimates

Here are some other health care stocks that you may want to consider, as our model shows that they too have the right combination of elements to post an earnings beat this quarter.

Vertex Pharmaceuticals Incorporated VRTX has an Earnings ESP of +7.24% and a Zacks Rank #2. The company is scheduled to release third-quarter results on Oct 25. You can see the complete list of today’s Zacks #1 Rank stocks here.

GlaxoSmithKline plc GSK has an Earnings ESP of +1.28% and a Zacks Rank #2. The company is scheduled to release third-quarter results on Oct 25.

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