Gilead Sciences (GILD) is scheduled to release its first quarter 2010 earnings on Apr 20, 2010. The company is expected to earn 96 cents during the quarter, according to the Zacks Consensus Estimate.
Fourth quarter highlights
Gilead reported revenue of $2.03 billion, up 42%, compared to the year-ago period and earnings of 90 cents per share (excluding non- recurring items) surpassing the Zacks Consensus Estimate by 8 cents. The robust growth was driven by strong product sales, especially the antiviral franchise. The company expects to generate sales of $7.6-$7.7 billion for the full year, an increase of 17% – 19% over 2009.
Atripla, with quarterly sales of $697.8 million became the lead product surpassing Truvada ($670.7 million) for the first time. Moreover, Gilead’s royalty, contract and other revenues increased based on higher royalties from Roche related to Tamiflu sales.
Agreement
Over the last 7 days, one analyst covering the stock has made upward revisions for the forthcoming two quarters, fiscal 2010 and fiscal 2011. Although no negative revision has taken place for the upcoming two quarters, one analyst has lowered the estimate for 2010 in the last 7 days. Overall, estimate revisions have gone up over the past 90 days.
There are a number of reasons for the positive sentiment regarding Gilead. The company, being a leading player in the HIV segment, is continuing to increase its patient base. In the third quarter of 2009, the number of patients treated with antiretroviral therapy grew by 4% on a moving annual total basis to approximately 578,000 patients.
We also believe the US Food and Drug Administration’s (FDA) approval for Cayston for the treatment of lung infection in patients with cystic fibrosis should enable Gilead to diversify its revenue stream.
Magnitude
The magnitude of revision is quite significant following the fourth quarter results. Overall, estimates for the first quarter have gone up from 80 cents to the current level of 89 cents per share in the last 90 days. For fiscal 2010, estimates have moved up from $3.18 to the current level of $3.46 per share over the past 3 months. A month ago, the average forecast was pegged at $3.44 per share. A similar trend can be seen for 2011 with estimates going up by 29 cents to $3.85 in the last 90 days.
Surprise
Going by the past trends, we expect Gilead to exceed estimates. The company has surpassed expectations in the last 4 quarters with a positive surprise of 9.76% and 7.25% in the fourth and third quarters of fiscal 2009, respectively, with a positive four-quarter average of 6.71%. This means that on an average, Gilead has topped the Zacks Consensus Estimate by 6.71% over the last four quarters.
Our Recommendation
Earnings over the past few quarters have exceeded expectations specifically on strong sales of the HIV franchise. Going forward, we remain optimistic on the growth prospects of Truvada and Atripla. However, the swine flu pandemic seems to be under control for the time being, which should limit Tamiflu sales growth. As a result, we have a Neutral recommendation on the stock.
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