Market commentary: Equities rebound while Ford Motors, Gilead Science’s results beat expectations

After starting the week in negative territory reflecting concerns over the resumed Chinese market meltdown, global equities posted a resilient session on Tuesday booking daily gains across the board.

European equities advanced led by the German Dax, the FTSE 100 and the Euro Stoxx 600 Index, although European markets turned modestly negative this morning.

US equities also gained yesterday with the major indexes advancing over 1%, driven by the release of better than expected quarterly earnings from large companies such as Merck & Co. Inc., Ford Motors Co., and Gilead Science Inc.

Merck & Co., one of US large pharmaceutical firms reported mixed results, beating analysts’ expectations on profit, but narrowly missing revenue estimates by $10 million. Although the company announced an EPS of $0.86 per shares, $0.05 ahead of analysts’ predictions, revenues took a sizable hit in the latest quarter with sales overall declining by 10.5%.

In contrast, Gilead Science Inc., the world largest biopharmaceutical company, worth over $162 billion in market capitalization, reported strong earnings, beating market’s estimates on both revenue and profit. The company reported revenues amounting to $8.2 billion, up 26.2% from the same quarter last year, and almost $600 million ahead of analysts’ expectations.

Net income also jumped during the second quarter of the year to $4.5 billion, up 22.9% year-on-year. The major driver was the firm’s latest HVC one pill regiment Harvoni, which was reported to generate as much as $3.61 billion in sales, while the previous blockbuster HVC Sovaldi recorded declining sales.

The solid results confirm the success of what it is considered by many the best managed pharmaceutical firm on the market, prompting the company to raise its forward guidance. Gilead increased its full year revenue projections to $29 - $30 billion, up from $28 - $29 billion indicated last quarter, and it now expects a gross margin of 88% to 90%.

Shares soared during trading yesterday, adding 2.29% ahead of the results, and has advanced almost an additional 4% in after-hour trading to $117.40. Although the stock has experienced some weakness over the last few sessions losing about 6% since July 15th, the latest results may very well be the catalyst for the stock to reach new highs.

Gilead Science has proved to be a wise investment achieving a 20% capital appreciation since the beginning of the year and about 26% over the past 12 months. In addition, the firm has also announced a quarterly dividend of $0.43 per shares, equivalent to a full year forward yield of 1.52%.

Another big winner on Tuesday was Ford Motors Co., after the company reported better than expected earnings. The US car maker posted revenues of $37.3 billion, beating analysts’ estimates by $1.96 billion, and EPS of $0.47 per shares, $0.10 ahead of analysts’ projections.

The company announced a 10% jump in pretax profit to $2.9 billion, with North America driving the sales’ growth and accounting for $23.3 billion out of the total $37.3 billion reported. Asia also performed well, with the region’s operating margin increasing by 230 bps to 7.8%, while Europe continued to experience declining revenues, which totaled $7 billion, down 14% from a year earlier.

Although the company’s shares gained 2% on Tuesday after the positive news, the stock has not deliver a great performance over the past 12 month, losing almost 17% from its 52 weeks high. However, the latest results may help the stock to recover, and income investors may find the current level an interesting entry point for an equity that pays an above average 4.04% yearly dividend.

This article was issued by Paolo Zonno, Trader/Analyst at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri & Co. Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.