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Summary

  • Expectations are high for strong EPS growth.
  • However, GILD has increased by about 200% in advance already.
  • In addition, recent concerns about pricing pressures exist.

Until the first quarter of their fiscal 2014 reporting cycle, EPS results from Gilead (NASDAQ:GILD) were unexciting, hovering around $0.50 per share. However, Gilead is currently expected to report EPS growth in excess of 60% vs. the previous quarter and the same quarter of the previous year, staggering growth rates of course, but the stock has also reacted well in advance, and it has already begun to experience undulation, so there are reasons to be concerned.

Since the second quarter of 2012 GILD shares have increased by about 200%, reaching a peak near $85.00 recently before turning down to where they are now. The aggressive increase was directly in line with the EPS growth expectations the street expects when Gilead reports earnings on Tuesday. Wall Street always reacts in advance, and the street had been pricing in extremely good news until recently.

Only a few short weeks ago Gilead began a ripple effect throughout the biotechnology sector in the NASDAQ, prompting a selloff that eventually spilled over to other high beta names. Pricing concerns were at the forefront of that selloff, and although we cannot be sure, everyone will be looking to management during the conference call for clarification. This will be the most important part of this earnings release because it will not only influence shares of Gilead, but probably other Biotechs and the NASDAQ as well.

The concerns that have rippled through higher beta names have not completely dissolved, and they could continue, but for shares of Gilead specifically, according to our real time trading report for Gilead, the stock broke down below its longer term support level a few weeks ago, it is still below longer term support, and therefore, just like we advised a few weeks ago, this is still an avoid.

Of course, the upcoming news will be important beyond just investors in Gilead, it will affect the entire market, but investors in Gilead specifically have reason to be concerned. If there is pricing pressure, the current multiple levied on shares of Gilead in expectation of future EPS growth is likely to come down even more than it has recently. The solid growth rates have been priced in, the stock hit a ceiling recently, bad news as investors on edge and the stock has broken longer term support.

Taking a stab at Gilead at these levels is haphazard and risky, and no buy signals currently exist according to our combined analysis. For investors, it is better to buy when buy signals actually surface than ahead of news which could easily go one way or the other. We're not at a craps table.

Source: Gilead Results Can Affect The Entire Market