GILD Summary: Lots of Life

Gilead Science (GILD - commentary - Cramer's Take) reported a strong quarter in the face of a weakening economic backdrop. For the quarter, the company posted EPS of 55 cents on total revenue of $1.37 billion. Product revenues came in at $1.34 billion on strength from Atripla and Truvada (HIV Franchise). Gross margins came in at 78%.

Truvada sales increased 34% year over year to $549 million (about $20 million above my estimate).

Atripla sales increased 77% year over year to $428 million due to strength in U.S. and successful European launch (about $15 million above the Street estimates).

Viread sales increased 5% to $156 million (about $5 million above consensus).

Guidance

The company reiterated full-year guidance of $4.9 billion-$5 billion but believe it can reach the higher end of target. This implies just slightly higher fourth-quarter revenues. The company is expecting 77%-79% non-GAAP product margins. It is targeting $650 million-$670 million in R&D expenses and $720 million-$740 million in SGA. For the full-year tax rate, it is expecting 27%-28% (down from last guidance).

Overall, it was a very strong quarter and I really don't see any weakness this quarter. Management suggested that they are seeing some results from negative Acombovir data (this is the competing product that I talked about in the preview) and patient switching.

The bears will continue to argue that eventually the HIV franchise (which is most of GILD) will slow and since they dominate the market, this will catch up with the company. However, a lot of bears have been arguing this for quite awhile. Given the attractive valuation and robust earnings growth, I plan to stick with the company for the time being.

Click here for the preview.

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At the time of publication, Thomas was long GILD, although holdings can change at any time without notice.

Ben Thomas, CFA, is the founder and managing principal of Waycross Partners. Waycross Partners is a long/short hedge fund that focuses on the technology and health care sectors. Before Waycross, Ben was a portfolio manager and senior equity analyst at INVESCO, where he was part of a team that managed over $20 billion in assets. While at INVESCO, he was the lead manager for the INVESCO Midcap Growth fund as well as the firm?s senior equity analyst covering technology stocks.

Prior to INVESCO, Ben worked for Banc One Securities and Prudential Securities. He graduated from the University of Kentucky with a bachelor?s degree in finance and went on to earn his MBA from Indiana University. Ben is a member of the CFA Institute and serves on the board of directors for the CFA Society of Louisville.