Gilead Sciences (GILD) 2nd Quarter Earnings Release July 23rd, 2014

GILD:

Gilead surprised the market with total product sales of $6.41B, representing a 236% year over year (YoY) increase from $2.77B, and Non- GAAP EPS of $2.36, representing a 470% increase YoY from $0.50. These both beat analyst expectations of $5.86B and $1.79 respectively. These strong second quarter results had Sovaldi, the company’s HepC wonder-drug, in the driver’s seat leading Gilead’s product sales with $3.48B. The high profit margin gained from the strength of Sovaldi sales generated an operating cash flow for Gilead of $4.19B, of which it used $1.2B to repurchase 15.2M shares and has almost $2B left in its share buyback program which ends in September. The company also announced an additional $5B buyback program following the completion of the current one. In addition, the company updated its annual 2014 guidance revising forecasted total product sales of $11B to $21B-$23B. After all this news Gilead remained relatively flat around $90 in the following 24 hours as there are some questions looming about the pricing of Sovaldi.

Sovaldi:

Sovaldi sales in the second quarter came in at $3.48B compared to analyst estimates of $2.6-$2.9B. As it stands now Sovaldi is the fastest growing drug…ever and it’s sales could pass the world’s top grossing prescription drug from 2013, Humira (an arthritis drug from AbbVie) if it keeps its sales pace. Domestic (US) sales increased to $4.82B year to date (ytd), treating 70,000 patients, with Europe sales also increasing to $1.3B ytd, treating 10,000 patients. Patients in 34 different countries are now being treated which has resulted in 9,000 people to date being cured of HepC however some physicians are delaying the treatment (warehousing) in anticipation for an all-oral treatment. Gilead is also anticipating Sovaldi approval in Japan, in early 2015. As for pricing problems, two members of the Senate have requested price justification for Sovaldi after Medicaid and health insurance companies have been feeling the pressure of Sovaldi’s unwavering demand. One option being looked at is the duration of the treatment, which is currently at 12 weeks but if it was lowered to 6 weeks would cut the price in half to $42,000. Could it be that the reason Gilead is experiencing a price pushback is due to the fact that HepC is primarily caused by drug users and derived from the use of needles? As it stands now a financial support system has been setup that helps patients who are underinsured, have no insurance, or have financial need to gain access to Sovaldi, called Support Path. The competitive atmosphere in the HepC market is also rising as Merck, Bristol Meyer, and AbbVie all are coming out with HepC drugs in the next year. The market is a bit uncertain on Gilead as pricing problems have clouded the future. The outlook for the drug remains positive and even if the price comes down the company is still looking to have a bright future.

Oncology:

Gilead received FDA approval on July 23^rd for Zydelig, which will treat three types of blood cancer. This was a breakthrough, however was overlooked by the market as Oncology is an area that receives high speculation. Gilead does have a drug currently in phase III, momelotinib, but the outlook is that they need to get more drugs in Oncology to really make a footprint in this segment.

Risks:

Some of the risks associated with Gilead are:

-       Price justification

-       Delayed FDA approval

-          Warehousing (physicians delaying prescriptions)

-          Competitive drugs (AbbVie, Bristol Meyer, Merck)

-          General market acceptance (seeing with Oncology)

Source: Bloomberg

Union Pacific Q2 Earnings - UNP continues to ramp up growth

Union Pacfic Q2 Earnings

      Union Pacific released robust Q2 earnings and continued to exemplify growth and a diverse balance within its structure.  Union Pacific beat earnings in top line and bottom line growth, UNP reported $1.43 per share, beating estimates by a cent.  Including UNP reported $6.015 billion in the second quarter compared to estimates of $5.982 billion.  Bottom line growth ascended 21% year over year and top line growth increased  10% year over year.

      Union Pacific's strong performance was attributable to higher volumes as well as pricing gains which is in line with the investment thesis.  Volume in carloads grew 8% year over year and average revenue per car rose 1% year over year. Moreover UNP's operating ratio improved 220 basis points year over year to 63.5%. ( record-breaking performance)  Second quarter results were driven by agricultural revenues of $934 million (up 19%year over year), industrial revenues of 1.13 billion (up 16% year over year), intermodal revenues of 1.15 billion (up 16% year over year) and other revenues of 354 million (up 12 % year over year).

      Union Pacific repurchased 8.3 million shares at an aggregate cost of $806 million during the second quarter.  Union Pacific's results continue to represent the strong investment thesis driven by pricing strategy, strong diversity within its commodities and its geographic presence continues to aid dominate the industry.  Going forward I will re-iterate a BUY rating for UNP and I am confident it will continue to excel in the following quarters.

Visa Second Quarter Earnings

Visa released Q214 earnings pre-market on Thursday, July 24^th. Net income for the quarter rose 11 percent to $1.36 billion, or $2.17 a share, from $1.23 billion or $1.88 a year earlier. Revenue increased 5% to $3.16 billion.  Due to a series of nagging economic issues, the company trimmed its projections for annual revenue growth. The report also shows cross-border volume growth on a constant dollar basis was 7% for the quarter. On the end of Friday, Visa dropped 3.58% or $7.97 to $214.77.

Earlier on Thursday, Visa announced Visa Digital Solutions, an initiative geared toward secure payments using mobile phones and other devices.

After the U.S. imposed sanctions against Russia in March, President Vladimir Putin tried to create their own payments system. However, due to the lack of experience and technical support, the program failed. Instead, the Russia government agreed to pay millions of dollars to Visa and Mastercard to keep them in action in Russia. Although Visa only generated 2% of revenue from Russia, the stock has been very sensitive to the Ukraine-Russian standoff. 

 Visa is heavily reliant on transaction growth, but after a long battle between retailers and payment technology companies, the company determined transaction fees of 21 cents. In addition, there are more substitute companies that have been established such as mobile wallet, which can highly affect Visa’s future growth. The investment thesis is intact, but it may be affected by the above reason in the future.

I have reiterated my price target of $246, representing 15% upside from Fridays closing price.  

Solarwinds Inc. 2Q14 Earnings: Record Beat, Outlook Raised, Reiterate BUY

Solarwinds Inc. reported 2Q14 earnings Thursday market close and held a corresponding conference call at 5pm EST. Revenues came in $101.5MM up 31% yoy besting our $96.6MM estimate. Non GAAP EPS was up $0.41 vs our $0.38 estimate up 11% yoy. All eyes on license revenue which came in at $37.6MM up 21% yoy due to strength in core and systems management products. It should be noted that this was the first time in company history where total revenue exceeded $100MM, a fine feather in the cap of an underdog.

On a year-over-year basis, new business sales grew by 25%. Did we not have faith incremental investment in the back half of last year would pay off? While the NA installed base contributed to sales to existing customers up 138%, more consistent momentum is gaining with EMEA and APAC, whose teams were started just a year ago. Over the next 3 quarters, management believes they have the “strongest schedule of product releases we’ve ever had as a company,” words taken with strides as the stock was up ~7% in after hours peaking ~12% today.

Solarwinds has expanded the depth and breadth of their leadership team over the last several quarters akin to their international build out. Also, last week, they announced that Paul Cormier, President of product and technology at Red Hat has joined the Board of Directors. On June 18, 2014, 13 days before the end of 2Q they acquired Pingdom, a leading provider of website monitoring and performance management solutions, which are all offered as a service from the cloud.

Enough positives. Total non-GAAP expenses grew by $23.4 million or 66%. Also, the company took a charge of $6.8 million related to the abandonment of their former headquarters in Austin. Solarwinds leased new space, which they moved into this past April to provide sufficient room for planned future growth.

Solarwinds generated record operating cash flow of $51 million as a result of strong collections. In August, they expect to repay $40M outstanding on their revolving credit facility. Lastly, approximately 70,000 shares were repurchased during Q2 for ~$2.7M under the stock buyback plan announced last year. There is approximately $12M still available under that buyback program, which is scheduled to conclude on July 31, 1 week from now. What is downside?

Outlook for FY Non-GAAP operating margin increased 100 bps to 42% based primarily on the margin outperformance in Q2 despite the dilutive impact of the Pingdom acquisition. Revenue outlook for the second half was raised $4.5M or $8.5M for FY14. On a stand-alone basis, Pingdom is approximately $2-2.5M of the sum. The rest due to increased confidence in the business based on demand generation, strengthened team, product roadmap and market opportunity.

After our double down in late June our average share price increased to $35.59. Currently up around ~20% we see another 20% of appreciation down the road. Over the last 3 years the stock has sold for 29x current year earnings. We are maintaining our $52.00 PT representing a 31x multiple to our FY14 EPS of $1.71. Indeed a slight premium warranted due to consistency of results, robust growth rates, and product pipeline coupled with profitability.