Gilead Reports Mixed Results; Lowers Outlook
Shares of Foster City, California-based Gilead Sciences, Inc. (NASDAQ: GILD – $88.55) declined in Monday’s extended session after the biopharmaceutical company lowered its 2016 outlook on product sales despite turning in better-than-expected quarterly profits. Gilead reported its second-quarter adjusted earnings fell to $3.08 a share vs. $3.15 in the second quarter of 2015. Earnings, however, were six cents better than Street estimates. Revenue decreased to $7.78 billion from $8.24 billion. Analysts had forecast revenue of $7.77 billion. Sales of its hepatitis C drugs Sovaldi and Harvoni shrank to $4 billion versus $4.9 billion in the same quarter last year, prompting the drug company to cut its 2016 net product sales forecast to a range of $30.5 billion to $29.5 billion from $31 billion to $30 billion previously, while analysts were looking for sales of $30 billion to $31 billion.
I still believe, despite the weaker outlook, that the shares are very reasonably priced at about 7 times estimated 2016 earnings. Although future profits garnered from Stribild, Harvoni and Sovaldi are expected to be lower than anticipated, they should still be pretty good, resulting in robust cash flow generation. Cash will likely be used to buy back shares, increase the dividend and possibly buy a company with strong sales potential. The shares of Gilead Sciences are not for the faint of heart and political uncertainties relating to drug pricing is a wildcard.