Despite Disappointing 2Q Earnings, Expect Gilead to Bounce Back, Says Top Analyst

Covid-19 might be responsible for the decimation of entire industries, but it has done wonders for many pharma companies’ valuations. However, its negative impact has made its way to the biotech sector, as evidenced by Gilead’s (GILD) soft Q2 earnings report.  

The virus is partly to blame for Gilead’s 10% sales decline to $5.14 billion ($160 million below the consensus estimate). The drop in patient visits to the doctor for hepatitis C virus checks resulted in Gilead’s HCV franchise declining by 47% year-over-year.

Elsewhere, GILD reported weak sales for its core HIV products. Descovy brought in $417 million, lower than the Street’s $475 million estimate, while Biktarvy’s $1.60 billion couldn’t match the forecasted $1.87 billion.

All in all, Gilead missed on the bottom line, with non-GAAP EPS of $1.11 coming in $0.34 below consensus.

As for Gilead’s COVID-19 treatment, remdesivir, the biotech expects to sell 1-1.5 million treatment courses this year. RBC analyst Brian Abrahams estimates this will equate to a contribution of approximately $3.5 billion in 2H20. Although the company does not expect the drug to be a “long-term value driver,” the 5-star analyst believes the sales “will provide near-term cash flow and enable the company to continue to focus on its expanding inflammatory and I/O programs.”

Abrahams further added, “GILD’s top and bottom lines were lighter than expected, largely due to weaker HIV sales from COVID-related purchasing fluctuations and increased outlays for remdesivir. Beyond HIV, HCV softness was unsurprising; However, we believe these effects had been recently well telegraphed and expected, and that stable underlying demand in a core business relatively insulated from pandemic headwinds should enable normalization in 2H — alongside a near-term cash flow boost from remdesivir.”

To this end, Abrahams remains a Gilead bull and kept his Outperform (i.e. Buy) rating as is. The price target, however, gets a slight trim and is reduced from $89 to $87. Even so, there’s still 26.5% upside in the cards, should the figure be met over the next 12 months. (To watch Abrahams’ track record, click here)

Looking at the consensus breakdown, an even 10 Buys and 10 Holds result in a Moderate Buy consensus rating. With the average price target set to $82.93, the analysts expect a 20.5% premium to be added to the stock in the months ahead. (See Gilead stock-price forecast on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.