Gilead Sciences, Inc. (GILD) crushed third-quarter expectations by a mile. Yet, GILD stock has not responded with the gains that investors might expect. Instead, GILD wafted down nearly 3%, confirming that Gilead is no longer a great investment opportunity.
GILD’s Q3 revenue grew 37.3% to $8.3 billion. That was about $480 million more than analysts expected. Furthermore, it earned $3.22 per share, a whopping 33 cents better than the consensus. Lastly, revenue increased $51 million from the second quarter.
Keep in mind, GILD’s revenue was supposed to max back in the first quarter of 2015 due to its HCV drugs, Harvoni and Sovaldi, peaking.
Instead, Gilead Sciences’s Q2 revenue was higher than the first and Q3 topped Q2. While Harvoni and Sovaldi revenue did decline some from the second quarter, $4.8 billion from $4.9 billion, the company’s performance still exceeded expectations.
Had any other company posted numbers like this, its stock would have traded considerably higher. On top of this, GILD hiked its full-year product sales guidance yet again, something that has become a regular occurrence.
|Product sales guidance for FY2015|
|Initial guidance February 3, 2015||$26-$27 billion|
|Update on April 30, 2015||$28-$29 billion|
|Updated on July 28, 2015||$29-$30 billion|
|Update on October 27, 2015||$30-$31 billion|
Albeit, GILD stock is up just over 4% in the past six months, which is conservative given the way that Gilead Sciences has hiked guidance and grown sales of its HCV franchise.
Any other company to produce this level of growth would be surging higher, but yet, in an overvalued sector of the market, GILD stock can’t breakout despite trading at just 9.3 times forward earnings.
The reason for GILD’s inability to breakout and trade higher comes down to an issue I discussed earlier this week: Investors want GILD to put its cash to work before Harvoni and Sovaldi sales start to decline rapidly.
Its safe to say that sales have already peaked, and since Harvoni and Sovaldi are actual cures for HCV, Gilead Sciences’s big multibillion dollar HCV market will eventually fade.
With that said, investors want a big acquisition, something substantial, and for GILD to put its now $25.1 billion in cash and marketable securities to work.
Until that happens, and Gilead Sciences has done something to solidify its future, it is unlikely that GILD stock trades much higher to support a market capitalization above $160 billion.
In other words, GILD stock is fairly valued.
As of this writing, Brian Nichols did not hold a position in any of the aforementioned securities.