Gilead Worth $125 After Earnings: Morgan Stanley

July 29, 2015

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In a report published Wednesday, Morgan Stanley analyst Matthew Harrison maintained an Overweight rating on Gilead Sciences, Inc. (NASDAQ: GILD), while raising the price target from $119 to $125, after the company reported higher-than-expected quarterly results.

Gilead reported its EPS ahead of the consensus expectations, with the beat being driven by Harvoni/Sovaldi. While Truvada, at $46M, Viread, at $22M, and Stribild, at $45M, beat expectations, Atripla was in line.

Gilead raised its 2015 net product sales guidance from $28.0-$29.0B to $29.0-$30.0B. Product gross margin guidance was raised from 87-90 percent to 88-90 percent. Guidance for R&D and SG&A expenses was reduced from $3.0-3.3B to $2.8-$3.0B and from $3.0-$3.3B to $3.0-$3.2B, respectively.

The company repurchased 9M shares for a total of $900M, while investing another $3.9B to retire 46M warrants related to convertible debt. “It expects diluted shares to be down 25M Q/Q,” analyst Matthew Harrison pointed out.

Harrison pointed out that Gilead was on track to potentially delivering “$12+ in EPS sustainably over the next few years.”

In the report Morgan Stanley noted, “With a few key pipeline assets not modeled by consensus (Simtuzumab, MMP9) and robust cash flow generation, we still see multiple upside drivers for this low multiple name. Not to mention the fact that sustainable HCV volumes are still discounted in the stock, such that if we see a recovery in 2H US volumes there remains fundamental upside to the business.”

While saying that the company’s management was expected to “take its time on M&A,” Harrison added that the company’s confidence in HCV volumes was “a good sign for 2016.”