(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Gilead Sciences Inc. (GILD) shares appear poised to rebound by about 12%, taking the stock back to around $72. Based on an analysis of the technical chart, the stock could be set to rise over the next several weeks. The stock has struggled so far in 2018, with shares falling by 8.25% versus an S&P 500 that has climbed by 1.25%.
The stock plunged after the biotech company missed first-quarter results as its hepatitis C suite of drugs continues to struggle and lose market share. Revenue missed estimates by nearly 6%, coming in at $5.088 billion, while earnings missed estimates by 11.25% at $1.48, resulting in shares plunging by 9.5%.
Technical Bottom in Place
The chart below shows that Gilead shares have reached a critical support level around $64 and has so far been able to remain above it. The support level found its origins during May 2017 and is the lowest in Gilead's nearly two-year decline from its peak around $125 in 2015. The weak results at the start of May created a gap in the chart. That gap may be filled over the short term, resulting in shares rising back to roughly $72, which also happens to be a resistance level that may prove difficult for the shares to rise above.
The relative strength index (RSI) has also reached oversold conditions with the index hitting a low of roughly 24. When the RSI falls below a level of 30, a stock is said to be oversold, while a reading above 70 is thought to be overbought. The last time the RSI hit levels this oversold was in November 2017, which was followed by the stock price rising by about 24%.
Analysts Slash Estimates
But despite the bullish technical setup, analysts have been trimming their outlook for 2018. Over the past 30 days, analysts have cut their earnings expectations for the full year by 4.5% and now see the company earning $6.16 per share. It would result in an earnings drop of a stunning 30% from a year ago. Additionally, analysts have also been cutting the revenue outlook for the company by 2.3% to $20.78 billion, representing a decline of almost 20.5% from a year ago, according to data from YCharts.
It would seem, for now, that based on the dismal outlook for the company's earnings and revenue, any bounce the stock gives investors is likely only to be a short-term event.
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.