Analysts diverge on Gilead after CEO announces exit

Shares of Gilead Sciences (GILD) are under pressure after the company announced that John Milligan will step down as President and CEO after a 28-year career with the company. Following the news, Baird analyst Brian Skorney downgraded the stock to Neutral as he believes Milligan leaves the company without clear direction. Still bullish on the stock, his peer at Piper Jaffray told investors the CEO resignation is not a concern as he thinks the company’s board would not let go of someone as qualified as Milligan “without a potential stellar candidate in mind.” MOVING TO THE SIDELINES: In a research note to investors this morning, Baird’s Skorney downgraded Gilead to Neutral from Outperform following the announcement that John Milligan is stepping down as CEO, which he said leaves the company without clear direction. The HIV franchise had an “impressive quarter” and the HCV franchise had “a quarter of stability,” but Skorney has concerns over further HCV price erosion after Merck (MRK) just announced a 60% price cut to Zepatier. Yescarta sales, while ahead of his and consensus estimates, were still far from validating the Kite acquisition, the analyst added. CEO RESIGNATION NOT A CONCERN: In a research note of his own, Piper Jaffray analyst Tyler Van Buren noted that while Gilead Sciences’ second quarter results were good across the businesses, one-time items resulted in a majority of the beat. Regardless, the HIV franchise “appears stronger than ever,” HCV finally stabilized quarter over quarter and the early indicators are there for cellular therapy franchise success, he added. Van Buren pointed out that the announcement of the CEO resignation has understandably caused a knee-jerk reaction to the shares, but he finds it hard to believe that the board “would let go of someone as qualified without a potential stellar candidate in mind to usher the company forward to the next phase of growth.” The analyst reiterated an Overweight rating and $85 price target on the shares saying Gilead has now laid a very solid foundation of antivirals growth over the next decade with ample resources to inflect the P&L via non-antiviral products. Voicing a similar opinion, Jefferies analyst Michael Yee told investors that Gilead’s second quarter results were “solid and consistent” with the positive turnaround story that is unfolding and he is confident the stock “would be trading up nicely” if not for the concurrent announcement that “well-liked” John Milligan will be stepping down. While a CEO search may present a small period of uncertainty, Yee would be a buyer of the stock, which he still sees moving to $90 by year-end amid rising anticipation of Phase 3 NASH data in the first half of next year. The analyst reiterated a Buy rating and $95 price target on Gilead shares. Meanwhile, Wells Fargo analyst Jim Birchenough raised his price target for Gilead to $95 from $89, while reiterating an Outperform rating on the stock, following better than expected second quarter operating results. With increasing confidence in 2018 as a trough earnings year, strong HIV growth outpacing HCV decline and emerging data over the next 12 months in large categories of cell therapy, immunology and NASH, the analyst expects continued multiple expansion. PRICE ACTION: In morning trading, shares of Gilead have dropped almost 2% to $77.55.

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