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Why Is Gilead Sciences (GILD) Down 3.5% Since the Last Earnings Report?

A month has gone by since the last earnings report for Gilead Sciences, Inc.GILD . Shares have lost about 3.5% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Gilead Beats on Q1 Earnings, Revenues Miss Estimates

Gilead Sciences ' first-quarter 2017 earnings (including the impact of stock-based compensation expenses) of $2.20 per share beat the Zacks Consensus Estimate of $2.18. However, earnings were down from $2.98 in the year-ago quarter.

Moreover, total revenue in the reported quarter was $6.5 billion, down 16.5% year over year and missed the Zacks Consensus Estimate of $6.7 billion.

HCV Franchise Disappoints Again, HIV Impresses

Product sales came in at $6.4 billion, down 16.9% year over year. The decline was due to lower hepatitis C virus (HCV) sales, partially offset by higher sales across HIV and other therapeutic areas.

Antiviral product sales, which include Gilead's HIV and liver disease portfolios, came in at $5.8 billion in the reported quarter, down 18.7%.

HCV product sales, which include Harvoni, Sovaldi and the recently launched Epclusa, were $2.6 billion, down 39.5%. The downside was mainly attributed to lower sales of Harvoni and Sovaldi across all major markets, partially offset by sales of Epclusa (launched in 2016) across various locations. Sales in the U.S. declined sequentially due to lower Epclusa sales, resulting in lower inventory along with some loss of market share as a result of increased competition.

Sales of Harvoni declined 54.5% year over year to $1.4 billion in the reported quarter. The decline was mainly due to lower sales in the U.S. Further, Sovaldi sales recorded a steep year-over-year decline of 75.4% to $313 million.

Epclusa garnered sales of $892 million in the reported quarter, lower than the $1.0 billion in the prior quarter. We note that Epclusa was launched in the U.S. and Europe in June and Jul 2016 respectively.

Meanwhile, HIV and HBV product sales came in at $3.3 billion, up 13.8% year over year. The increase was primarily driven by continuous strong uptake of tenofovir alafenamide (TAF)-based products such as Genvoya, which generated sales of $769 million, up from $563 million in the prior quarter, Descovy, which recorded sales of $251 million, up from $149 million in the prior quarter, and Odefsey, which registered sales of $227 million, up from $155 million in the prior quarter.

HIV treatments like Stribild and Complera/Eviplera and Viread sales declined. Atripla sales tanked 33% to $452 million, while Truvada sales fell 20.4% to $714 million.

Other products like Letairis, Ranexa, AmBisome and Zydelig recorded sales of $211 million (up 20.6%), $153 million (up 6%), $92 million (up 6.9%) and $35 million (down 28.5%), respectively.

Research & development (R&D) expenses declined 26.4% to $931 million due to the impact of up-front collaboration expenses in 2016 related to Gilead's license and collaboration agreement with Galapagos NV and impairment charges related to in-process R&D. On the other hand, selling, general and administrative (SG&A) expenses were up 24% to $850 million due to higher branded prescription drug fee expense.

Adjusted product gross margin was 88.3%, up from 87.2% in the year-ago period.

2017 Guidance Reiterated

Gilead expects net product sales in the range of $22.5-$24.5 billion. Non-HCV product sales are projected between $15 billion and $15.5 billion. HCV product sales are projected between $7.5 billion and $9.0 billion. Adjusted R&D expenses and adjusted SG&A expenses are projected in the range of $3.1billion-$3.4 billion and $3.1billion-$3.4 billion, respectively. Adjusted product gross margin is estimated in the range of 86-88%. Earnings per share are projected around 84 cents - 91 cents.

Dividend and Share Repurchase

Concurrently, Gilead declared a cash dividend of $0.52 per share of common stock for second-quarter 2017. The dividend is payable on Jun 29 to stockholders of record at the close of business on Jun 16. During the first quarter, the company paid cash dividends of $687 million and repurchased 7.9 million shares of stock for $565 million.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There have been five revisions lower for the current quarter.

Gilead Sciences, Inc. Price and Consensus

Gilead Sciences, Inc. Price and Consensus | Gilead Sciences, Inc. Quote

VGM Scores

At this time, Gilead Sciences' stock has a poor Growth Score of 'F', a grade with the same score on the momentum front. However, the stock was allocated a grade of 'A' on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'D'. If you aren't focused on one strategy, this score is the one you should be interested in.

The company's stock is suitable solely for value investors based on our style scores.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We expect in-line returns from the stock in the next few months.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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