Gilead Continues To Shine, But Watch The Competition

| About: Gilead Sciences, (GILD)

Gilead (NASDAQ:GILD) once again posted stellar numbers last week when it announced its third quarter earnings. The company earned $0.42 per share on $1.06 billion in revenues. Also, the company announced Monday that its board has authorized the repurchase of $3 billion worth of its stock through 2010.

To start with, I think the earnings strength is no surprise. However, it did "surprise" and beat the Street by three cents. Gilead's core strengths are dominant right now. Sales from the HIV franchise grew by 45% year-over-year, thanks to Truvada and Atripla. Also, Atripla was approved by the European Union last week, so sales should continue to increase for that product.

The company also guided toward $3.6-$3.7 billion in total product revenues for the full year 2007, raising previous guidance. As an investor in Gilead, a buyback is always great to see, especially since the company has been buying back shares for a few years now (Gilead bought $455 million worth of shares in the second quarter, in connection with the stock split). The company has about 929 million shares outstanding and this buyback could buy nearly 69 million of those shares, or roughly 7% of the company, at a trading price of $43. I also hope to see a continuation of Gilead's acquisitions, if the right opportunities present themselves.

With all of the positives, I remain bullish on the stock and I am going to raise my year-end price target to $50 from $45. However, some headwinds might pose problems for Gilead in the future, which we will need to keep an eye on. First, the HIV growth is beginning to slow, and competition might begin to stiffen; Merck (NYSE:MRK) just got the approval for a new HIV drug.

Also, while Gilead's pipeline looks strong, it is playing catch-up in some areas with strong competition. Finally, we will have to wait and see if Letairis can pull significant market share in pulmonary arterial hypertension. Sales have been slow so far, but that could be attributed to rebates offered by Gilead.

Disclosure: Authors owns stock in GILD.