Turnaround Letter Buy-rated Gilead Sciences (GILD) reported 3Q19 revenues that were flat compared to a year ago and in-line with consensus expectations. Adjusted net income of $1.75/share declined 5% compared to a year ago. The company either beat or missed consensus estimates as two competing data services companies had different consensus estimates. From our perspective, earnings were essentially in-line with estimates. Product gross margins were higher than a year ago, but more spending on marketing and research more than offset this improvement. These initiatives make sense as the company works to reinvigorate its growth.
Gilead reiterated their full-year 2019 per-share earnings guidance for $3.90 - $4.00.
The stock is moderately weak today (down about 5% in mid-morning trading) on concerns that the near-term results, while acceptable, weren’t inspiring. From a longer-term perspective, the turnaround is in the early innings and the results were fine.
Gilead generated $2.6 billion in operating cash flow, repurchased $223 million in stock, paid $804 million in dividends, and repaid $1.5 billion in debt. Its cash balance is $25.1 billion, slightly more than its $24.8 billion in debt. This strength provides a strong foundation for Gilead’s future.
Gilead is working to revive revenue growth as sales of its hepatitis C treatments decline. More patients are being cured of the disease, plus new low-cost therapies are emerging. Gilead’s HIV treatments continue to grow (up 11% in the quarter) despite investor skepticism regarding their longer-term prospects. Cancer treatment Yescarta, a new product, had lower sales than expected but continues to have sizeable potential.
On the post-earnings conference call, new and highly-regarded CEO Daniel O’Day outlined some of the company’s growth initiatives, including its partnership with Galapogos, the rollout of recently-approved HIV and rheumatoid arthritis treatments, and cancer treatment Yescarta. Also, he noted the addition of the new CFO and new chief medical officer as he builds out his leadership team.
Gilead Sciences Press Release: 3Q 2019 Earnings
We continue to rate shares of Gilead Sciences a Buy with a $105 price target.
Disclosure Note: One or more employees of the Publisher own GILD shares.