Bright Path Ahead for Gilead Sciences: Algorithmic Forecast

This article was written by Cole Winston, a Financial Analyst at I Know First.

 Bright Path Ahead for Gilead Sciences


  • Governance
  • Business and Financial Performance
  • Price Action: Ending Bearish Sentiment
  • Bullish Forecast for GILD

After a very productive 2016 fiscal year in the progression of its drug pipeline, and after a multi-year disconnect between its fundamentals and the market’s reflection of those fundamentals, Gilead Sciences (NASDAQ: GILD) is beginning to once again demonstrate why it warrants a closer examination as a bullish long position investment.

GILD operates in 5 different segments of the biopharmaceutical medicines industry within the healthcare sector: HIV/AIDS (10 compounds), Liver Diseases (6 compounds), Hematology/Oncology (1 compounds), Cardiovascular (3 compounds), Inflammation/Respiratory (2 compounds), plus two other compounds unassociated with any of these segments.

The thesis highlighted by the algorithm stems from the fact that GILD has been beaten down disproportionately from its all-time (40%) and year-to-date (10%) highs, creating what is well on its way to becoming an  attractive opportunity for those willing to address the emotional 2-year sell-off that has likely just ended.


Gilead is led by a Board of Directors and Executive Management team comprised of individuals with a combined years of experience at the company of more than 200 years (and even longer in the industry), including many PhDs, MDs, and established careers in the business, finance and consulting worlds. In general, this is a positive aspect to the company as it shows that GILD is equipped with only the most qualified individuals with the credentials and experience as proof.

It might therefore be shocking that GILD shares have been stuck in this extended bear market. However, it all becomes clear when one accounts for the recent insider selling and a disappointing round of Fiscal Year 2017 guidance earlier this year, both adding to the downward pressure on the share price of Gilead’s common equity. Although it is clear, it by no means makes the actions of management and the board acceptable or commendable. Executive management and boards everywhere are entirely aware of market reactions and the consequences to their own actions. It is advisable, then, to continue to keep a close eye on their actions and words to get a general understanding for what’s going on in the minds of the management and board teams.

Although management and the board are ultimately responsible for that happens to the corporation, one cannot solely rely on analysis of these people without further examination into the actual performance of the business itself. To truly learn of the current and potential future states of GILD, it is imperative to pair management discussions and analyses with business and financial performance as a means of grading these teams, so to speak.

Business and Financial Performance

Top-line 2016 figures, namely Total Revenues and Total Product Sales, dropped % from $32.6 billion to $30.4 billion, and % from $32.2 billion billion to $30.0 billion year-over-year, respectively. Bottom-line 2016 numbers were equally unnerving, as Net Income declined 34% from $18 billion to $13 billion. On a per-share basis, diluted Earnings per Share (EPS) – one of the most impactful figures monitored by market participants – dropped from $9.94 per diluted share to $11.91 per diluted share year-over-year. On the surface, these changes paint a darker picture for GILD as one would expect and as predicted by the I Know First algorithm. However, all becomes clear upon examination of the two major causal factors facilitating this drop.

Firstly is the drop in product sales, primarily of Harvoni and Sovaldi. Both of these medications are Hepatitis C virus (HCV) treatments. There exists one factor more significant and impactful than the others; the fact that these HCV treatments were and are not, in fact, just treatments, they are actually cures. Therefore, the massive success Gilead experienced with these drugs actually ironically caused their own demise, as organic growth eventually eliminates much need for the drugs.

Second is the eye-popping 70% year-over-year increase in the Research and Development (R&D) expense line item. If this were almost any other expense, it would be highly disturbing. However, it is instead confidence-building as it is a major way in which the company is attempting to more-than-offset and replace its declining Hepatitis C business.

Adding to the rebounding plans of the company, Gilead has also been on the lookout for potential acquisition targets as a means of external inorganic growth. Nevertheless, the leadership team has determined that potential acquisition targets are too expensive and therefore presently unattractive, continuing to operate with the belief that the best value can be achieved by investing capital into Gilead itself. Therefore, although falling HCV profitability is not something to gloss over, it might turn out to not be as significant a factor that the market currently believes it is.

Additionally, regardless of falls at both the top and bottom lines both on the whole and on a per-share basis, Cash Dividends declared actually increased from $1.29 per share to $1.84 per share.

Price Action: Ending Bearish Sentiment

As with any trade or investment, it is a fool’s errand to make decisions regarding capital allocation without a close look at both supporting fundamentals and technical price action. The price charts below show that common shares of GILD have been in a prolonged downtrend since August 2015, continuing downwards until June 2017 and therefore only recently ending this bearish sentiment.

However, crowd psychology has demonstrated a renewed willingness to bid prices in GILD higher as the economic landscape of Gilead begins to return to a rosier picture, following shockingly negative 2017 guidance and as the business continues to aggressively develop and progress through its drug pipeline.

After 13 consecutive down months, June 2017 finally demonstrated life in this market. Lower timeframes confirm this bullish indicator and the next few weeks, months, and the rest of the year will be crucial in determining the outlook for the company and its stock price.

If management and the board can rectify their suffering image and can continue executing in their pipeline clinical trials, paired with some luck on clinical trial data and results, GILD may very well return to the limelight of financial markets, becoming a prized possession once again.

Bullish Forecast for GILD

At the end of the day, financial markets are fundamentally a massive battle of emotions and sentiment of market participants. Also, financial markets are a discounting mechanism of expectations of the future. In other words, market prices change to reflect what the involved market participants think is to come for their respective underlying assets.

With this in mind, an analysis of GILD reveals that – given the upcoming positive catalysts for both the company and its share price – market participants have accounted for a very dark and gloomy outlook for the company. Emotions often trump reason and take things to extremes, as is the case for GILD.

This bullishness is reflected very clearly in the I Know First algorithm, as detailed below. With both near-term and longer-term catalysts, it is quite easy to understand the algorithm’s forecast of positive and rapidly-increasing performance over a 1-month, 3-month, and 1-year time frame.


The I Know First algorithm has been continuously bullish on GILD for a while now, most recently as of November 25th, 2015. GILD subsequently generated an approximate 81.0% return since then. As demonstrated above, the algorithm is once again bullish on GILD over the short-, medium- and long-terms. It very well may be time to pay attention to this name.

This bullish forecast for GILD was sent to I Know First subscribers on November 25th, 2015. To subscribe today click here.

I Know First Algorithm Heatmap Explanation

The sign of the signal tells in which direction the asset price is expected to go (positive = to go up = Long, negative = to drop = Short position), the signal strength is related to the magnitude of the expected return and is used for ranking purposes of the investment opportunities.

Predictability is the actual fitness function being optimized every day, and can be simplified explained as the correlation based quality measure of the signal. This is a unique indicator of the I Know First algorithm, allowing the user to separate and focus on the most predictable assets according to the algorithm. Ranging between -1 and 1, one should focus on predictability levels significantly above in order to fill confident about/trust the signal.



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