Gilead Sciences (GILD) Q3 Earnings: Stock To Disappoint?

Gilead Sciences Inc. (NASDAQ:GILD) is scheduled to report third-quarter 2016 results on Nov 1, after the market closes. Last quarter, the company had surpassed expectations with a positive earnings surprise of 0.33%.

Gilead’s track record has been encouraging so far, with the company beating estimates in three of the last four trailing quarters. Overall, the company has recorded an average positive earnings surprise of 4.08%.

Let's see how things are shaping up for this biotech major for this announcement.

Factors at Play

In the second quarter of 2016, Gilead’s hepatitis C virus (HCV) franchise, which consists of Harvoni, Sovaldi and the recently launched Epclusa, recorded a year-over-year decline of 18.4% mainly due to lower sales of Harvoni (down almost 29% year over year). Performance of the HCV franchise was disappointing in both the U.S. and Europe.

Thus, during the last quarterly earnings call, Gilead lowered its net product sales outlook for 2016, keeping in mind the current trends in payer and patient flow dynamics for HCV. The company now expects net product sales in the range of $29.5–$30.5 billion (old guidance: $30–$31 billion).

Management had stated that the trimmed outlook was due to a number of factors including lower HCV revenue per patient as a result of a mix shift toward the more heavily discounted payer segment in the U.S. and a lower net average price in Europe; slowing patient starts in the U.S. commercial segment and some earlier launch markets of Europe; continued preference for shorter duration treatment; and the loss of market share to competition.

Nevertheless, the company’s HIV business has been performing well and should continue to do so in the to-be-reported quarter, thanks to the recently launched tenofovir alafenamide (TAF)-based regimens, Genvoya, Odefsey and Descovy. Genvoya has already become the most prescribed regimen for both treatment-naïve and switch patients since its launch last November.

On the third-quarter call, investors should keep an eye on the company’s performance while business development plans will also be keenly awaited. Focus would also be on the performance of Epclusa and TAF-based regimens.

GILEAD SCIENCES Price and EPS Surprise

What Our Model Indicates

Our proven model does not conclusively show that Gilead is likely to beat on earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) to likely post an earnings beat. But that is not the case here, as you will see below.

Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is at -0.36%. This is because the Most Accurate estimate is $2.74 while the Zacks Consensus Estimate is pegged higher at $2.75.

Zacks Rank: Gilead currently carries a Zacks Rank #5 (Strong Sell). As it is, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.

Stocks That Warrant a Look

Here are some health care stocks that you may want to consider instead, as our model shows that they have the right combination of elements to post an earnings beat this quarter.

Amgen Inc. (NASDAQ:AMGN) has an Earnings ESP of +1.08% and a Zacks Rank #3. The company is scheduled to release third-quarter results on Oct 27.

Bristol-Myers Squibb Company (NYSE:BMY) has an Earnings ESP of +3.08% and a Zacks Rank #3. It is scheduled to report third-quarter results on Oct 27.

Shire plc (NASDAQ:SHPG) is scheduled to report third-quarter results on Nov 1. It has an Earnings ESP of +1.26% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

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