Earnings over the past few quarters have been above expectations specifically on strong sales of the HIV franchise products. We continue to be positive on the name and are looking for a strong remainder of 2008.
We consider Truvada a reformulation of drugs Viread and Emtriva to be a potential breakthrough product for the treatment of HIV/AIDS. Additionally, the approval of Atripla offers the next big wave of topline growth for the company. We are currently at a Hold rating as we think the current price fairly represents the story. However, longer-term, we remain bullish as Gilead is a core biotech to own.
Our target is $55 based on strong 2008 EPS growth, confidence in the long-term growth rate which now includes Myogen, and better penetration for Atripla. We continue to be positive on the name but believe given the nearly tripling in the stock price over the past 2+ years, Gilead may be due for a breather. We would look to be buyers if the stock pulled back below $45.
Intersil Outlook Stays Neutral
We are maintaining our Hold rating on the shares of Intersil Corporation (ISIL). June quarter revenue was in-line with consensus estimates, while the EPS exceeded. Forward guidance is for a 1-3% revenue increase in the next quarter.
Shares of Intersil are currently trading at a 14.3x multiple of our current 2008 earnings estimate (P/E). Intersil's product breadth and increasing penetration indicate that it is relatively well positioned in the markets in which it operates. This could be a key factor in the next two years, if the recessionary trends continue. Recent acquisitions have augmented the product portfolio and increased the percentage of consumer and industrial products in the mix, which is a positive for revenue growth and margin expansion.
The management is improving the mix of products, and also implementing other initiatives to reduce costs and maintain profitability. Recent restructuring efforts are also expected to have a positive impact. The company has $2.75 in cash per share. We also analyzed the ROE (return on equity) of the company (9.1% on TTM (trailing 12-month) basis), breaking it into its three components net margin, asset turnover and equity multiplier. The net margin has held relatively steady over the last three years, although it dipped somewhat in 2005.
The asset turnover has been increasing from quarter to quarter during the same time period. This indicates that the company is managing assets efficiently, and converting them to revenue at an accelerated rate. The equity multiplier has also held relatively steady. This ratio, at over 100%, is a big positive, considering the company's debt free balance sheet. We are reiterating our $30 price target, which corresponds to a P/E multiple of 18.3x.
AGCO Sees Decent Growth Ahead
AGCO Corp. (AG) reported second quarter EPS of $1.34, above our estimate at $0.90, due to a smaller-than-expected loss in North America and continued robust growth in South America and the EMEA (Europe, Middle East and Africa) region. The sales growth was broad-based, with every geographic region posting a double-digit sales increase. The growth in commercial farm income and acreage is driving demand for high-horsepower tractors.
While North America reported a loss, we expect a second half profit recovery on the back of favorable currency translation, higher margins, and double-digit sales growth. Our target price is $57, based on around 14.7x our 2008 EPS estimate of $3.87
Despite the management's cautious EPS forecast of $3.60 to $3.70 for 2008, we believe there are several long-term trends that point to higher earnings growth.
