Solid Potential For Gilead To Beat Estimates And Raise Guidance: Here's How

Citi expects Gilead Sciences, Inc. (NASDAQ: GILD) to report a beat and raise second-quarter, as it sees about $280 million upside to consensus second-quarter sales and about $500 million upside to consensus 2016 sales.

Expectations

The Street expects Gilead to earn $2.99 a share on revenue of $7.75 billion for the second quarter. For the full year, analysts expect earnings of $12.05 a share on revenue of $31.19 billion.

Analyst Robyn Karnauskas sees earnings of $3.15 a share for the second quarter, and $12.16 for the full year.

First-Quarter Concerns

Gilead missed first-quarter EPS, "primarily driven by weakness in US HCV sales. Sales were $2.05 billion versus consensus estimates of $2.45 billion for the quarter. More importantly, sales dropped 13 percent sequentially despite 11 percent increase in patients treated. This raised concerns around pricing and rebates," according to the analyst.

Related Link: Gilead Gets European CHMP's Positive Opinion For Epclusa For All Genotypes Of Chronic Hepatitis C Treatment

The analyst learned that the key drivers of the miss were:

• 1. "Increase in payer rebates due to opening of access;
• 2. "Increased VA rebates;
• 3. "Prior period rebates hitting the sales in 1Q (meaning the demand was higher than $2.05 billion);
• 4. "Higher number of patients on 8-week treatment leading to lower revenues per patient (small impact);
• 5. "Reduction in wholesaler inventory;
• 6. "Market share versus MRK (small impact)."

"After further analysis of these factors and taking out some one-time items, we believe that the real demand may be ~$2.2 billion. We think that GILD can get their numbers above their guidance," Karnauskas wrote in a note.

Looking Forward

"We think they can beat guidance and note that GILD maintained FY 2016 guidance at $30–$31 billion in product sales. We think that this may be conservative as 1Q'16 run rate takes us to $30.7 billion product sales, which is already towards the high end of the guidance range," Karnauskas added.

The analyst said Gilead's guidance could be conservative, as the first quarter "tends to be the weakest quarter for HIV" due to inventory stocking in the fourth quarter, and Hep C "was depressed for the first quarter."

Estimates

The analyst's new model estimates FY 2016 product sales at $31.2 billion versus company outlook of $30 billion–$31 billion guidance. The analyst currently sees second quarter and FY16 US HCV sales of $2.35 billion and $8.9 billion, respectively.

Related Link: 5 Reasons Arrowhead Pharma Is A Hepatitis B Leader

Karnauskas noted that the Street has ignored the company's strength in HIV. On the HIV front, the analyst said "investors need to pay attention to seasonality" during the rest of the year. The analyst expects HIV sales to increase in the second quarter, flat in the third quarter and strong in the fourth quarter. Although there could be inventory drawdown in the third quarter, "we think Genvoya strength will offset that," the analyst stated.

"For overall product sales, we expect a dip in 4Q to account for potential HCV weakness. We see beat potential and model FY product sales at $31.2 billion vs. $30–31 billion guidance," Karnauskas highlighted.

Karnauskas has a Buy rating and $105 price target on the stock, which closed Friday's trading at $85.82 and was up 0.5 percent early Tuesday morning.