Expecting Gilead Sciences to Move Higher

Gilead Sciences (GILD) is breaking out of a trading range with the possibility of moving higher on analysts' upgrades, improving profitability and a patent infringement case against Teva Pharmaceuticals.

Trading Range Breakout

For the past three months, Gilead Sciences has been trading between $47.50 a share on the high side of a range and $41.50 a share on the lower end of a trading range. Just recently, the stock has pushed through the upper end of the range reaching an intraday high of $49.77. At the same time, the stock’s 13 day moving average crossed above its 50 moving average, technically signaling a buying opportunity.

Analysts Upgrade Gilead Sciences

Gilead Sciences was upgraded by Merrill Lynch on Tuesday with a new $55 target and improved earnings expectations due to the company's HIV treatments. Over the past 90 days, analysts have increased the company's expected earnings from 52 cents a share to 55 cents a share for the current quarter. For the current year, analysts are now expecting earnings to come in $2.05 a share compared to previous expectations of $1.98 a share.

Teva Pharmaceuticals Case

On Friday of last week, Gilead Sciences filed a patent infringement suit against generic drug manufacturer Teva Pharmaceuticals (TEVA). The case is based on a patent Gilead holds for emtricitabine, which is a compound licensed from Emory University and used in Truvada to treat adults with HIV infections. Teva is attempting to produce and market a generic form of Truvada prior to the patent on emtricitabine expiring. Stopping Teva from doing so will be beneficial to Gilead’s earnings going forward.

The Trade

Therefore, a number of positive items have led to a technical buy signal in Gilead this week that is an opportunity to purchase the shares before they appreciate more. Analysts anticipating high earnings for the company is the first important piece of news that provides the stock with some positive momentum higher. In addition, the lawsuit against Teva provides an insurance against one of the companies' drugs losing market share prior to its patent expiration.

Disclosure: no positions

Comments

[Dan Jacome:]

it was in IBD 3 days ago

2008 Dec 19 08:15 AM