Gilead Sciences (NASDAQ: GILD – $73.04) disappointed investors once again with third quarter earnings of $2.75 per share, missing the Street’s anticipated $2.86 and down from $3.22/share a year earlier. Revenue beat estimates at $7.5 billion versus $7.44 billion, but was down year-over-year from $8.3 billion. Sales of HIV and other anti-viral products gained some ground, but were overshadowed by revenue declines in the company’s hepatitis segment. Sales of Harvoni and Sovaldi both fell 44% on lower patient starts and lower pricing. Gilead has about $31.6 billion of cash and marketable securities on its books and cash flow from operating activities was $4.3 billion for the quarter. With the stock’s low price, management is using its excess cash for share buybacks as well as dividends. However, I believe it is time for GLD to put its cash hoard to better use with acquisitions and diversify its portfolio. The company is awaiting the results of nine clinical trials for potential drugs between now and December 31st.
The company reiterated guidance for the full year with net product sales of between $29.5 billion and $30.5 billion. The Street expects revenue to come in at $30.34 billion for 2016 and analysts don’t think Gilead can earn much more than $11.00 per share this year. 2017 does not appear too promising, either. Nonetheless, given the stock’s single-digit P/E multiple and well-covered dividend, I think GLD has above-average total return potential to 2019-2021, if it can get its act together. However, it will certainly be a stock to watch as the entire bio-pharmaceutical sector is under attack from politicians and Gilead has competitive pressures to deal with in its hepatitis franchise from the likes of AbbVie and Merck.