4 Things To Watch When Gilead Sciences Reports On Monday

Stock market

Gilead Sciences.  Investing.

by Clement Thibault

Gilead Sciences (NASDAQ:GILD), a global biopharmaceutical company, reports Q2 results on Monday, after the close.

1. Revenue and earnings forecast

Gilead Sciences' forecast for Q2 is $3.02 EPS on $7.83B revenue. Should Gilead meet this EPS forecast, it would indicate that the company hasn't grown its EPS this past quarter—the first time since 2013. Gilead had a spectacular 2015, beating EPS estimates by 10% or more each quarter. In Q1 2015, the company reported EPS of 2.94 vs 2.32 expected, which made for a very welcome 26% upside surprise. Unfortunately, so far, 2016 hasn't been nearly as impressive. Reports for Q4 2015 and Q1 2016 beat EPS estimates by a paltry 1%, at $3.03 per share. The slowdown is also reflected in its current share price: $86.55 as of Friday's close, a far cry from its all-time high of $123.37 during June 2014.

2. Hepatitis C: GILD's core business

Right now, the two major diseases treated by Gilead's medicines are HIV and Hepatits C. Its two biggest products, both blockbusters, are Hepatits C (HCV) medications, Sovaldi and Harvoni. Together, these meds account for almost half of the company's revenue.

Understandably, during Monday's report the focus will be on their recent performance. In Q1, Gilead's HCV product sales fell by 6% year-over-year, to $4.3B. The problematic market for Gilead is the United States.

For the better part of the past three years, Gilead had a monopoly in the field of HCV drugs, which allowed it to accrue uncontested profits. At the end of April however, AbbVie Inc (NYSE:ABBV) launched its competitive HCV drug, Viekira Pak, which followed Merck's (NYSE:MRK) competitive offering, Zepatier, launched at the beginning of the year. The increased competition led to an inevitable loss of market share and a price war; Harvoni sells for 94K for the length of the treatment, Sovaldi for 84K, while Merck's Zepatier costs 54K for the identical course.

All three companies are applying for approval in China, where it is estimated that 10 to 20 million Chinese citizens have Hepatitis C. Perhaps more significant in the short-term, on June 28 the FDA approved Epculsa, Gilead's newest HCV treatment, which is effective for all six major forms of HCV – the first of its kind. For comparison, Harvoni is used primarily to treat genotype 1, the most common form of Hepatitis C in the US and Europe.

Because of the recent introduction, the new drug's financial impact won't be visible in the coming report, but its longer term effect could be significant in upcoming quarters.

3. Balance Sheet and Valuation

Perhaps one of the most compelling reasons for owning Gilead is its strong balance sheet. The $115B company has over $21B in cash assets, and is engaged in a stock buyback program which has taken over $8-billion worth of shares out of circulation. Its current liabilities are under $11B, which means Gilead has a ratio of Cash/Current Liabilities of almost 2. Pharmaceutical giants GlaxoSmithKline (NYSE:GSK), AbbVie and Merck all have a ratio of below 1.

The company's operating income for Q1 was $4.6B on $7.8B total revenue, meaning its operating margin is 59%, which compares very well against Merck's 17% or AbbVie's 37%. As of today, the company has a very low P/E ratio of 7.4, significantly less than the industry average of 40. As if these numbers weren't impressive enough, the company also has over $17.7B of free cash flow, which means it trades at under 7 times its cash flow.

During June 2015, Gilead started handing back some of its excess cash to investors in the form of dividends. The dividend, which began as a quarterly $0.43 payout, grew to $0.47 – a 9% increase – as recently as last month. With its current cash situation, it looks as if GILD will be able to grow its dividend when and as it wishes for the foreseeable future.

4. Developments in the R&D pipeline

Stock prices often reflect future expected value, rather than present worth. For pharmaceutical companies, their R&D pipeline may arguably be just as—if not more—important than their current product lineup. If that's the case, what's in Gilead's pipeline? We've already mentioned Epculsa, above, which is expected to reclaim at least some of Gilead's lost HCV revenue. GILD's next big prospect is Simtuzumab, which is currently in a phase 2 study. The drug aims to treat nonalcoholic steatohepatitis (NASH). If approved, it is expected to generate well over $10B in annual sales. Behind these two products, Gilead has seven late-stage clinical trials and 16 additional phase two studies in the works. While its R&D expenses, at $3B annually, are lower than Merck's or AbbVie's, they are on par with similarly sized GlaxoSmithKline, which indicates there's no scrimping at Gilead's end.

Conclusion

Gilead currently generates over $32B in annual revenue. It can no longer be considered an up-and-comer, as its share price has already exploded from the mid-30s in late 2012 to regularly being priced at over $110, which happened in 2014 and 2015.

Both its current performance and future prospects are looking good. Why then is it so undervalued?

With a P/E ratio of 7.4, it appears the market is discounting any future growth, and may have already priced in a decline in profitability. We believe this is an incorrect assessment of the company and its potential.

An alternative explanation could be that unfortunately Gilead has been dragged down by the pharma sector as a whole. As evident by the current performance of the popular SPDR S&P Biotech ETF (NYSE:XBI), which is now trading at $59.35—well below its all-time high of $91.1 a year ago—the entire sector is still hurting, nor has it recovered from the early 2016 Valeant (NYSE:VRX) price-gouging fiasco which pulled the sector down significantly.

Notwithstanding all of the above, we believe it’s merely a matter of time before Gilead's share price recovers. The company's revenues are immense, its operating margin is extraordinary, cash is flowing freely, and the company is buying back stock.

The way we see it, Gilead is like a high-end race car, spinning its wheels at the starting line, held back only by the weight of the sector in which it operates. Once that drag is removed, we believe it will take off at top speed, potentially leaving at least some competitors in the dust.

Baidu says offer to buy its stake in online video unit withdrawn

Business

Stock market. Investing. Nasdaq. Technology.

(Reuters) - Chinese internet search company Baidu Inc (NASDAQ:BIDU) said on Monday an offer it received in February to buy its stake in online video unit iQiyi has been withdrawn.

Baidu said that the buyer group had not been able to reach an agreement on a purchase price even after rounds of discussions and negotiations.

The company in February received an offer for its 80.5 percent stake in Qiyi.com Inc from Robin Yanhong Li, head of Baidu, and Yu Gong, chief executive officer of Qiyi.com.

All of iQiyi was then valued at $2.8 billion.

Baidu, known as China's Google (NASDAQ:GOOGL), bought the majority stake in the then loss-making iQiyi in 2012, a push into the highly competitive Chinese digital media market.

SunEdison unit TerraForm Power adopts poison pill

Stock market

Wall Street. Business.  Investing. Nasdaq.

(Reuters) - SunEdison Inc's unit TerraForm Power Inc said it had adopted a shareholders rights plan to prevent any sale of a significant number of Class A shares in the company.

Brookfield Asset Management Inc and hedge fund Appaloosa plan to jointly bid for SunEdison's stake in TerraForm Power, according to a regulatory filing on Friday.

TerraForm Power shares rose 6.7 percent to $13.34 in light premarket trading on Monday.

All Class B shares of TerraForm Power are owned by SunEdison, while its Class A shares are held by the public, private investors and the company's executives.

TerraForm Power had 80 million Class A shares and 60.4 million Class B shares outstanding as of Oct. 31, 2015.

The rights plan is also aimed at fending off Brookfield Asset Management's accumulation of its Class A shares, TerraForm Power said in a statement on Monday.

Separately, SunEdison said it was working with TerraForm Power and its other yieldco,TerraForm Global Inc, to explore "value creation options" for their Class B shares it holds.

The rights plan, popularly known as "poison pill", will be triggered if a party takes 15 percent ownership of TerraForm Power.

Brookfield Asset Management and Appaloosa own 12.13 percent and 9.54 percent of TerraForm Power's class A shares, respectively, according to a filing.

U.S. futures point to steady open in cautious trade

Stock Markets

Investing.com - Wall Street futures held steady on Monday, as investors remained cautious ahead of policy meetings by the Federal Reserve and the Bank of Japan this week.

The blue-chip Dow futures was up 0.03%, the S&P 500 futures inched 0.01% higher, while the tech-heavy Nasdaq 100 futures dipped 0.02%.

Upbeat U.S. data released that week continued to support expectations for a rate hike by the U.S. central bank in the near future.

While most investors expect the Fed to leave its monetary policy unchanged this week, it could give hints on the timing of future rate hikes.

Market participants were also looking ahead to Friday’s policy statement by the BoJ, amid growing expectations for the announcement of additional stimulus measures.

General Electric was expected to remain in focus after reporting on Friday a 2% decline in second-quarter orders, citing a "volatile and slow growth economy." Shares were down 0.19% in pre-market trade.

Financial stocks were also likely to move on Monday as Morgan Stanley last week joined a number of other U.S. lenders in exceeding second-quarter profit estimates.

Elsewhere, American Airlines Group was set to be in the spotlight after reporting a 44% drop to $950 million in second-quarter net income.

The company also said it will be deferring the delivery of the 22 Airbus A350 aircraft it has on order. The carrier was supposed to receive its first A350 in the spring of 2017 but with the new agreement it will receive two A350s in late 2018 and then five A350s each year after that until 2022.

No major U.S. data was expected throughout the day.

Corporate raiders seek Brexit bargains in Britain

Business and Stock Markets.

By Pamela Barbaglia and Freya Berry

LONDON (Reuters) - Overseas buyers lured by a plunge in the pound are looking to snare British companies on the cheap, ensuring a steady flow of deals since Britain voted to leave the European Union and defying expectations of an M&A drought.

Almost 60 transactions totalling $34.5 billion have been struck by foreign companies for British firms since June 23, according to Thomson Reuters data, compared with 79 deals amounting to $4.3 billion in the month leading up to the vote.

This activity - dominated by Japanese group SoftBank's $32 billion swoop for chip designer ARM Holdings - has defied warnings that dealmaking could dry up for a period if Britain backed Brexit, given uncertainty surrounding risks to the economy and access to the EU single market.

The list of British takeovers could grow after the summer, according to bankers who say they are working on possible bids on behalf of foreign companies interested in UK targets.

The SoftBank deal was hailed by the government as a sign of UK economic resilience, prompting new Prime Minister Theresa May to declare the country "open for business".

But M&A bankers said some of the post-vote takeovers had more to do with the relatively low valuations of British companies given current exchange rates, rather than being driven by confidence in the British economy.

Sterling has taken the brunt of market concern since the Brexit vote on June 23, falling to a 31-year low in the aftermath of the vote.

"Clearly this is a buying opportunity," said Ben Ward, head of UK corporate at law firm Herbert Smith Freehills. "People with strong currencies – dollar, renminbi, yen – will no doubt be interested in acquiring sound sterling-denominated assets."

There have been dozens of other deals since the referendum.

South African retailer Steinhoff agreed to pay nearly 600 million pounds for British-based discount chain Poundland  on July 13, for example.

It came a day after AMC Entertainment Holdings - an American company majority-owned by a Chinese conglomerate - said it would buy London-based Odeon & UCI Cinemas Group to create the world's largest cinema operator, in a deal valued at about 921 million pounds.

On Thursday, China's Fosun International snapped up English football club Wolverhampton Wanderers.

DEFENCE FROM RAIDS

Some M&A bankers in London say they are working closely with British companies who feel vulnerable to hostile bids from cash-rich foreign buyers, in sectors including aerospace, housebuilding and retail. Others say they are trying to win advisory mandates at firms viewed as potential takeover targets.

"We're helping our UK clients think through the right fundamental value of their business in the current environment and shoring them up to prevent unwanted opportunistic situations where an international rival tries to buy them on the cheap," said Hernan Cristerna, co-head of global M&A at JPMorgan.

U.S. and Asian conglomerates are also stepping up efforts to secure bargain deals unseen in decades, sources said.

Some have hired banks to resurrect deals that were aborted in recent years because of price disagreements.

After the vote British companies have become 10-15 percent cheaper for overseas buyers due to the devaluation of the pound which was trading at $1.31 on July 22 against $1.50 the day before the referendum.

"When you have a material currency discontinuity it makes sense to dust off previous M&A analyses and crunch the numbers again," said Paulo Pereira, a partner at boutique advisory firm Perella Weinberg.

'POLITICAL FOOTBALL'

Surveys conducted in the run-up to the referendum had warned a Brexit vote would threaten M&A activity.

A study released on June 16 by Merrill Corporation, a provider of technology and services in the M&A industry, and market intelligence firm The M&A Advisor found a Brexit vote would have a "negative and tangible" near-term impact on UK dealmaking, with British companies becoming less attractive to overseas buyers.

A survey of 1,500 global dealmakers published the same day by technology provider Intralinks suggested a decision to leave the EU would lead to dealmaking "chaos", driving down M&A levels in Britain as well as the rest of Europe.

But the M&A drought has yet to materialize.

The sectors with the highest concentration of foreign takeovers in the past four weeks were technology, consumer, industrials and media, with an overall 37 sales valued at $33 billion. Industry sources said some had roots in discussions that began well ahead of the June referendum.

"If we have learned one thing from the global financial crisis it's that standing still means moving backwards," said Steve Krouskos, EY Global Vice Chair, Transaction Advisory Services, adding that companies need to carry on doing deals to boost their organic growth, build a global presence and stay ahead of the technology curve.

JPMorgan's Cristerna stressed that "boards still have strategic needs and ambitions and need to remain open to external sources of growth".

Pricing aside, however, dealmaking will still be tough for overseas buyers who must evaluate the uncertainty surrounding Britain's future relationship with the EU, and the prospects of a messy divorce that may take several years to conclude.

Additionally, any sizable takeover could face tighter government scrutiny, after May pledged to oppose foreign companies trying to buy British champions deemed "strategically important", citing the sale of chocolatier Cadbury in 2010 and Pfizer's attempted takeover of AstraZeneca in 2014.

But SoftBank's friendly takeover of ARM, which won the blessing of the government in less than 24 hours, established a useful blueprint for dealmaking following the Brexit vote, banking sources said.

The Japanese company made legally-binding commitments to double ARM's UK headcount in the next five years and preserve its Cambridge headquarters.

"There is so much 'political football' going on that if you want to pull off a significant transaction in a sensitive sector it is wise to start planning some concessions beforehand to ease government approval," said Perella's Pereira.

($1 = 0.7644 pounds)

U.S. stocks inch up, as Wall Street closes higher for 4th straight week.

Stock Markets.

Wall Street, Dow Jones, NYSE, S&P 500, Nasdaq.

Investing.com -- U.S. stocks re-entered record territory on Friday, completing their fourth straight week of positive gains, as strong performances by a pair of telecom giants, outweighed losses from General Electric (NYSE:GE) following subdued quarterly earnings from the multinational conglomerate.

The Dow Jones Industrial Average gained 53.62 or 0.29% to 18,570.85, while the S&P 500 Composite index added 9.86 or 0.46% to 2,175.03, as U.S. equities stayed on pace for their strongest month since March. The indices have remained in record territory for the majority of the last two weeks, as signals of slowing growth in the euro area and Japan, as well as plunging global bond yields have sent investors fleeing to safety into stocks on Wall Street. The S&P 500 ended the week at its highest closing level on record. The NASDAQ Composite index, meanwhile, rose by 26.26 or 0.52% to 5,100.16, moving approximately 2% from hitting a record-high.

On the S&P 500, nine of 10 sectors closed in the green as stocks in the Telecommunications, Utilities and Financials industries led. The telecom sector received a boost from AT&T Inc (NYSE:T) and Verizon Communications Inc (NYSE:VZ), which both gained more than 1% on the session. On Thursday evening, AT&T narrowly topped analysts' forecasts with its second quarter earnings, while increasing consolidated revenues by 22% to $40.5 billion for the three-month period ending in late-June. It came as the Dallas-based company reported a spike of 2.1 million wireless adds, 1.4 million of which came from the U.S.

Midway through the second quarter results period, approximately 3% of S&P 500 companies are reporting year-over-year earnings decreases, far below expectations for an aggregate decline of 4.5%, according to Reuters. Next week, roughly 40% of S&P 500 companies are set to report their quarterly earnings.

The top performer on the Dow was Visa Inc (NYSE:V), which added 1.12 or 1.42% to 79.91. Visa finished just ahead of Microsoft Corporation (NASDAQ:MSFT), which gained 0.77 or 1.38% to 56.57. Earlier this week, Microsoft topped analysts' earnings and revenue estimates after sales among its closely-watched cloud product more than doubled on the quarter. Microsoft shares are up roughly 6% since the Redmond, Washington-based company released their second quarter results on Tuesday night.

The worst performer was GE, which fell 0.53 or 1.63% to 32.06 in Friday's session, after failing to appease investor sentiments on Friday in spite of beating consensus forecasts with its quarterly results. Although GE's revenues rose sharply in the second quarter on an annual basis, investors placed closer attention to weakness in the locomotive and oil-field equipment segment, where orders fell 16%, ex-acquistion and currency shifts. GE had been one of the top components on the Dow since last May when it last hit all-time record highs.

The biggest gainer on the NASDAQ was Vodafone Group (LON:VOD) PLC (NASDAQ:VOD), which added 1.23 or 4.09% to 31.34. Shares in Vodafone are still down nearly 20% over the last year, including 10% during the last three months. The worst performer was Skyworks Solutions Inc (NASDAQ:SWKS), which tumbled 6.11 or 8.62% to 64.81. Shares in the Skyworks Solutions plummeted one day after the semiconductor manufacturer said its profits fell 9% last quarter on an annual basis. Skyworks Solutions, one of the top suppliers for the iPhone, reportedly has seen its revenues dented as Apple Inc (NASDAQ:AAPL) looks to reduce its channel inventory ahead of the iPhone 7 launch, according to a report from Fool.com.

On the New York Stock Exchange, advancing issues outnumbered declining ones by a 1,958-996 margin.

Goldman Sachs to invest $184 million in Brazil storage company: executive

Stock Markets

SAO PAULO (Reuters) - Goldman Sachs Group Inc (N:GS) will invest 600 million reais ($184 million) in Brazilian storage company Metrofit over the next 6 years, betting on a recovery from the harshest recession since the 1930s, a company executive said on Friday.

Metrofit, founded in 2012, is a joint venture between Brazilian real estate company TRX (SA:TRXL11) and U.S. company Metro Self Storage. The terms of the agreement with the U.S. investment bank were not disclosed.

The self storage business is growing in Brazil, despite the recession. Metrofit plans to build up to 10 storage sites a year in different state capitals, TRX's chief executive officer Luiz Augusto do Amaral said.

Metrofit's competitors GuardeAqui, controlled by Sam Zell's Equity International, and GoodStorage have announced expansion plans, taking the opportunity to buy cheap real estate during the recession.

"Goldman Sachs is betting on a longer term recovery", Amaral said. "And the timing is good to expand, since this year there is a lot of new real state coming to the market with prices lower than expected."

Metrofit owns two self-storage sites in the rich Sao Paulo metropolitan region and is building two others. The company may use part of the cash injection to fund acquisitions, Amaral said.

Earlier this week, Brazilian technology startup CargoX announced that Goldman Sachs had led a 35 million reais ($11 million) investment round for the company to help it fund an expansion.

L'Oreal acquires New Jersey-based IT Cosmetics in $1.2 billion cash deal

Stock Markets

Acquisitions and takeovers.

Investing.com -- L'Oréal (PA:OREP) S.A., the world largest cosmetics company, bolstered its vast inventory of unique, distinctive beauty products on Friday with the acquisition of IT Cosmetics.

On Friday afternoon, the Paris-based cosmetics giant announced that it came to terms on a definitive agreement to acquire the Jersey City, New Jersey-based beauty brand for $1.2 billion in cash. Founded only eight years ago, IT Cosmetics was developed by top plastic surgeons nationwide to help empower women with top of the line skincare and makeup products. IT Cosmetics offers more than 300 beauty products, ranging from color cosmetics and skincare items to brushes and tools, the company said in a statement.

"IT Cosmetics shares L'Oréal's passion for product innovation and our belief that offering beauty for all is a deeply purposeful mission," said Frédéric Rozé, President and CEO of L'Oréal USA. "The brand has earned the devotion of its highly engaged consumers and we see potential for significant growth in the years to come."

IT Cosmetics, which was founded in 2008 by Jamie Kern Lima and Paulo Lima, will become part of the Luxe Division of L'Oréal, the companies said. The brand will continue to operate out of its Jersey City, New Jersey headquarters under the current leadership team, IT Cosmetics said.

"At IT Cosmetics our mission is to make the world more beautiful through our products, through our actions and through our belief that every woman is beautiful and deserves to feel her most beautiful," said Jamie Kern Lima, Co-Founder & CEO, IT Cosmetics.

"Our makeup and skincare products are not only game-changing in their innovation, they are also life-changing for real women everywhere. Partnering with L'Oréal and utilizing the power of their global infrastructure will help us scale our mission in an even bigger way and we couldn't be more excited," Lima added.

Shares in L'Oreal closed Friday's session at €174.55, up 1.20 or 0.69%.

Silicon Valley leads avalanche of quarterly reports.

Stock Markets

Wall Street. Quarterly report.

By Noel Randewich

SAN FRANCISCO (Reuters) - A quartet of technology heavyweights will be part of an avalanche of quarterly corporate earnings reports next week that, along with a meeting of Federal Reserve policymakers, could hold the key to whether Wall Street extends its record-breaking rally or loses steam.

With second-quarter reporting season kicking into high gear, scorecards from Apple (O:AAPL), Alphabet (O:GOOGL), Amazon.com (O:AMZN) and Facebook (O:FB) will be front and center for investors eyeing the S&P 500's already-stretched valuation following a nearly 9-percent rally since June 27.

"These are very widely owned companies by institutional investors and there could be selling if the news is bad," said Tim Ghriskey, chief investment officer of Solaris Group in Bedford Hills, New York.

A total of 194 S&P 500 companies are expected report their quarterly earnings next week; that is much higher than normal for any one week, even during most reporting seasons.

Of reports in so far, 54 percent have shown revenue above expectations, slightly better than the 48-percent beat rate over the past year.

Expectations for earnings also appear to be on the mend after over a year of declines caused by slumping oil prices and a strong dollar. Second-quarter profits are now forecast to dip 3.0 percent, less than the 4.5 percent drop expected at the start of July, according to Thomson Reuters I/B/E/S.

With the S&P 500 trading at about 17 times expected earnings, valuations appear stretched, with some investors saying current stock prices presume better-than-expected results and forecasts from major companies.

Apple, Alphabet, Amazon and Facebook account for around 7 percent of the S&P 500 and a fifth of the Nasdaq Composite, which has lagged the broader stock market so far this year.

The S&P 500 is up 6 percent in 2016 while the Nasdaq has gained just 2 percent.

Many on Wall Street expect those leading technology firms to at least meet or slightly exceed analysts' forecasts, strategists said. A series of big surprises in either direction could lead to steep stock swings.

Indeed, shares of Amazon have whipsawed following its most recent reports, slumping 6 percent in one day after its December quarter profits missed expectations and surging 10 percent the day after its March-quarter results blew away forecasts.

Wall Street widely expects sales of Apple's iPhones to fall this year for the first time ever as it competes with cheaper rivals in China. But investors are banking on the release of a new smartphone later this year to return Apple to revenue growth in 2017.

"I'm looking at the numbers coming in next week, and Facebook, Google and Amazon should all be strong. Apple is the only one I'm concerned out because of the some of the issues they've had with lost market share," said Daniel Morgan, senior portfolio manager at Synovus Trust Company in Atlanta. His firm owns shares of Apple, Amazon and Alphabet.

On Tuesday and Wednesday the Federal Reserve holds its next policy meeting, with futures prices implying most investors expect no interest rate hike until March 2017. Following the market's quick rebound from Britain's unexpected June vote to leave the European Union, a minority of investors predict an increase as soon as September.

"They're going to start setting people up for September. The economy is clearly getting better and we're seeing less concern about international events," said Stephen Massocca, Chief Investment Officer of Wedbush Equity Management LLC in San Francisco.

Apple hands in its results on Tuesday, while Facebook reports on Wednesday and Amazon and Alphabet report on Thursday.