First quarter earnings could drive Illumina shares higher today
Shares of the genetic analysis and sequencing company Illumina are up nearly 10% in premarket trading this morning, following the company's first quarter earnings report released yesterday. What's driving shares higher is the fact that Illumina beat consensus for both earnings per share and revenue. Specifically, Illumina reported earnings of $0.46 per diluted share, compared to consensus of $0.44. Revenue also shot up by 27% for the first quarter compared to a year ago to $421 million. Management attributed this strong year over year growth partly to better than expected uptake of two new products, NextSeq 500 and HiSeq X. Illumina thus increased annual guidance for 2014 earnings per share to $2.10 to $2.15, compared to its prior projections of $2.00 to $2.06. Illumina is now projecting a 21% to 23% growth in revenue for 2014 compared to 2013.
Is Illumina a strong buy post-earnings? I have to say no. The stock was rising substantially heading into this earnings report and is already up over 33% year to date. After today, the stock could be up more than 40% for the year and trading at close to 10 to 12 times annual sales. As such, my view is that Illumina is fairly valued at current levels.
Intuitive Surgical falling in premarket post-earnings
Unlike Illumina investors who appear to be celebrating today, Intuitive Surgical's stakeholders are none too happy this morning. Specifically, Intuitive shares are down close to 9% in premarket this morning, following the company's earnings release after the bell yesterday. What's got investors bummed is that revenue fell by 24% to $464.7 million compared to a year ago. And management placed the blame for this notable revenue drop on the new guidelines set forth in the Affordable Care Act, or ACA, regarding capital spending priorities for hospitals.
Namely, Intuitive Surgical believes the ACA's guidelines hurt sales of its surgical systems, especially the da Vinci surgical system. The company also declined to provide an update on 2014 guidance in its earnings release, leaving investors to wonder what to expect moving forward.
Could today's fall be a buying opportunity? Again, I believe you might be better served by avoiding this stock post-earnings. Intuitive has been moving lower in the past month in anticipation of this earnings report and the actual report gave investors little reason to be optimistic, at least in the short term, going forward.
Gilead blows earnings out of the water
Although Gilead is somewhat infamous on the Street for being a conservative company, they decided to halt their shares prior to releasing earnings after the bell yesterday. And two minutes after the bell, we found out why. Gilead's hepatitis C drug Sovaldi posted global sales of nearly $2.3 billion, making it one of the best drug launches in history. The company also saw strong growth in its HIV franchise, with Stribild growing U.S. sales by 49% year over year. Overall, Gilead reported that revenues increased by 104% year over year, mostly due to the launch of Sovaldi. Shares of this top biotech are up close to 4% in premarket trading presumably based on this earning's beat.
While it would be easy to get hung up on Gilead's new star drug, you should also dig into many of the company's intriguing statements about its clinical program and general business operations. Of particular note, Gilead expects its experimental cancer drug idelalisib to gain FDA approval later this year for two different indications, and the company is deep into planning for the drug's launch as a result. Management also made a point that they will be accelerating their share buyback program in the coming months.
Is Gilead worth keeping tabs on going forward? My view is that Gilead is undervalued after this stellar earnings report--so it's definitely worth checking out. The company is on track to grow annual revenues to around $20 billion this year, meaning that the stock is trading at a forward price to earnings ratio of less than 12. That said, management still didn't feel comfortable providing annual guidance for Sovaldi. As such, the market may remain unconvinced that Gilead is a bargain, despite what I view as some good evidence to the contrary.
George Budwell owns shares of Gilead Sciences. The Motley Fool recommends Gilead Sciences, Illumina, and Intuitive Surgical. The Motley Fool owns shares of Intuitive Surgical. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.