J.P. Morgan analyst Cory Kasimov is getting more upbeat on two biotech players on the heels of aces from both handed over with second quarterly results yesterday. Between Gilead Sciences, Inc. (NASDAQ:GILD) showing it remains a force to be reckoned with in the HIV sphere even in face of a derailing HCV segment and Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) exciting cystic fibrosis prospects, the analyst has every confidence these two stocks are one to watch in the biotech-verse. (To watch Kasimov’s track record, click here.)
Let’s take a closer look:
Gilead’s Beat-and-Raise Shows Resilience Despite HCV Factor
Gilead delivered a reassuring second-quarter print yesterday that has Kasimov highlighting promise for this biotech giant- even with its HCV weakness. This is a giant that even when faced with questions of pipeline and merger and acquisition prospects knows how to snap right back.
Therefore, the analyst reiterates an Overweight rating on shares of GILD while hiking the price target from $80 to $85, which represents a close to 13% increase from where the stock is currently trading.
The question for Kasimov is whether Gilead is showing hints of life, or if this is simply the “eye of the storm” in the bigger story. Positively, the giant not only outclasses expectations, but also boosted its own guidance for the rest of the year. Although, notably, Kasimov questions is the outlook first posted was “prudently conservative” to Gilead’s advantage. Whereas the giant struggles with its HCV franchise that continues to wane, its HCV product trio handed in a robust performance of $2.9 billion, a solid climb above consensus who called for $2.3 billion. Additionally, thanks to the strong quarter, Gilead’s cash flow will be bolstered, easing HCV concerns for the time being. The analyst attributes some of this stellar quarter to “inventory builds, seasonal starts and deferred revenue recognition.”
Ultimately, from Kasimov’s eyes, Gilead’s tale remains a bullish one. “HIV continues to do well as expected and should get an important boost in 2018 with the likely approval of B/F/TAF. While the company’s performance in 2Q was undoubtedly encouraging – and it should help serve to maintain recent momentum in the name – we believe the overall narrative is unchanged. The company needs to hit it big with the pipeline (unlikely in the near term ex-bictegravir) and/or execute on M&A…and on that front the wait still drags on. As it stands, GILD will likely continue to screen well (now at ~8.3x our new 2017e EPS vs. ~15x for large cap biotech ex-GILD), which combined with a very strong balance sheet ($36.6B in cash at ~1x leverage, $3B FCF this Q) should keep a high level of generalist interest in the story (remains the most called on name this year). Then what happens on the BD front (and when) might determine how long that lasts,” surmises the analyst.
TipRanks analytics showcase GILD as a Strong Buy. Out of 14 analysts polled by TipRanks in the last 3 months, 11 are bullish on Gilead stock while 3 remain sidelined. With a return potential of 10%, the stock’s consensus target price stands at $81.73.
Vertex’s Strategic Value Clearer as CF Dominance Grows
Vertex likewise outperformed on both top and bottom line expectations in its second quarter, bringing even more momentum on back of last week’s successful triple combo data read-out. Believing just as this “solid quarter continues to set the stage for potentially much bigger things to come,” Vertex is establishing a strong foothold in the cystic fibrosis arena, Kasimov continues to root for Vertex’s compelling future.
As such, the analyst maintains an Overweight rating on the stock while raising the price target from $175 to $184, which represents a just under 13% increase from where the shares last closed.
“While Kalydeco and Orkambi continue to beat expectations, we are overwhelmingly focused on progress with the triple combo (not to mention teza/iva post positive Phase 3 data) vs. the quarterly performance of Orkambi and Kalydeco. Nevertheless, if the Orkambi launch in the EU doesn’t hit any road bumps (and the company indicated that it expects to be on the higher end of the guidance range), then we suspect investor confidence will continue to build for what’s to come with teza/iva and, of course, the triples. Bottom line, we believe in VRTX’s prevailing (and increasing) dominance in the CF space and potentially meaningful bottom-line leverage that add to the company’s strategic value,” contends Kasimov.
TipRanks analytics indicate VRTX as a Strong Buy. Based on 19 analysts polled by TipRanks in the last 3 months, 17 rate a Buy on Vertex stock while 2 maintain a Hold. The 12-month average price target stands at $167.31, marking a 2% upside from where the stock is currently trading.