(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Gilead Sciences Inc. (GILD) shares have risen by 14 percent, far ahead of the market, a seemingly positive trend. But warnings are emerging. Gilead shares nonetheless are down sharply from their January highs as analysts slash earnings and revenue estimates for the current year and beyond. That indicates that Gilead's stock may face heavy downward pressure as sales continue to slow for their hepatitis C franchise, while the recent purchase of Kite Pharmaceuticals, matures.
Analysts have cut Gilead's earnings for the year 2020 by nearly 5 percent to $7.05 per share, and revenue by just over 6 percent to $21.73 billion. Gilead's fall from grace has been steep down, and the latest round of analyst cuts could be a sign that more declines are coming, despite the company's attempts to revive growth via acquisitions and partnerships.
GILD Annual Revenue Estimates data by YCharts
Revenue Estimates Slashed
Analyst estimates for Gilead's revenue have been slashed across the board for 2018, 2019, 2020, in a sign that the company's growth rate won't increase anytime soon.
Revenue estimates for 2018 were trimmed by roughly 3.3 percent to $21.35 billion, while 3.6 percent was cut for 2019, lowering forecasts to $21.06 billion. And 2020 revenue projections were reduced more than 6 percent to $21.73 billion.
Based on the current estimates, revenue is not expected to meaningfully grow for the next three years. By 2020, Gilead's revenue would have declined by 33 percent from its peak in 2015.
GILD Revenue Estimates for Next Fiscal Year data by YCharts
The outlook for earnings is not much better, with 2018 and 2020 earnings slashed by nearly 5 percent each, to $6.44 and $7.05 a share respectively, while 2 percent was cut for 2019, to $6.55.
It is surprising that despite no top-line revenue growth, analysts expect Gilead's earnings to grow from 2018 to 2020. But even with the increase, earnings will be significantly lower from the $8.84 a share the company posted in 2017. (See also: What's the Difference Between Bottom-Line and Top-Line Growth?)
GILD EPS Estimates for Next Fiscal Year data by YCharts
To be sure, not everyone is bearish on Gilead. A large number of analysts have buy ratings on the stock, and the average price target is $88.50 a share, 9 percent higher than today, according to data from YCharts. But the slow growth ahead for Gilead's hepatitis C drugs and slashed earnings forecasts indicate those price targets may fall in the coming months. (See also: Who Are Gilead Sciences' Main Competitors?)
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.