In front of Gilead Sciences, Inc. (NASDAQ:GILD) earnings report Tuesday night, how are GILD investors preparing? Let’s take a look at GILD stock’s recent announcements, price chart and what, if anything, the options market is suggesting for bulls, bears and less directionally motivated traders.
Ahead of GILD’s Tuesday night third-quarter earnings release, analysts expect Gilead Sciences to produce profits of $2.86 per share. The Street forecast implies a drop of 11.2% in earnings from the year-ago period when $3.22 was reported.
Revenues at Gilead are forecast to decline by 10.2% on quarterly sales of $7.45 billion compared to 2015’s $8.3 billion result.
At the same time there is a silver lining for GILD stock. Profit margins are up despite lesser sales. Also, poor and fearful sentiment has put Gilead’s price multiple of sub-7 at historic lows, suggesting the worst may be priced in at this point in time.
Further, GILD still generates plenty of cash from HCV and has a promising foothold in hep-B with its Viread treatment. The company is also in phase 3 trials for nonalcoholic steatohepatitis — a multibillion-dollar market in its own right and maintains a strong pipeline of 15 data readouts.
Gilead’s Short-Term Trading Record
GILD has established a strong pattern of beating Street profit views. Over the past couple years the company has topped estimates 81% of the time, beating on 11 occasions and missing just twice.
Investor reaction in GILD stock has proven much less authoritative, however, with an equal number of gains and losses in the immediate aftermath of releasing its earnings. Working backward, GILD has moved -8.48%, -9.06%, 4.46%, -2.55%, 2.34% and 4.48% in the first trading session following earnings.
The overall investor reaction in Gilead shares has resulted in an average decline of -1.46% on a close-to-close basis. Variability of 6.2% based on a one standard deviation reading yields an estimated range of -7.66% to 4.74%.
GILD’s seven day stock performance reflects a modestly larger outcome with an average drop of -1.73% and standard deviation of 7.18%, resulting in range of -8.91% to 5.45%.
GILD Stock Weekly Chart
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More optimistically for bullish GILD investors, pattern failures can be equally powerful events and trend changers.
Given GILD’s lowly valuation, I’ll be watching shares for any bids above $82 as confirmation of a significant low in place. Barring the required 11% move higher to change our view, I’d respect the bearish trend and refrain from bottom fishing at current levels.
GILD Options Pricing
In Friday’s session, the at-the-money GILD stock Nov. 4 $75 call was relatively active. The call traded roughly 1,100 times compared to open interest of 750 and suggests modest opening of fresh wagers in front of the earnings event.
For a buyer of this GILD call, a mid-market closing price of $1.63 would require Gilead shares to rally to $76.63 or 3.8% to break even at expiration.
Considering Gilead’s recent earnings reactions, the size of the move fits in within the normal bell curve and wouldn’t be considered an unusual price move. Having said that, there is no margin for error as the contract has just three sessions to work following the report.
For the more statistically inclined, the Nov. 4 $75 straddle market points to a 68% chance GILD will remain within a range of $68.04 and $79.71 through Friday’s expiration. The math behind the GILD stock price range calculation is based on implied volatility of 57% with five trading sessions left.
The weeklies contract is the purest play on the earnings event and tells us what traders collectively expect from Gilead shares in the immediate aftermath of its quarterly announcement.
Currently, the dollar move up or down works out to about 7.9% in GILD stock by Friday’s close. The pricing is mixed to high compared to recent historical reactions, suggesting traders are collectively voting on a larger-than-normal price move.
Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.
