Diamonds and Dogs

7/26/16

The string of chip stocks rallying following earnings continues with Texas Instruments (TXN). Texas Instruments is up 6% to a 16-year high following better than expected earnings. The company beat earnings by 4 cents as revenue beat as well. Gross margins came in at an impressive 61.2% while free cash flow was $911 million for the quarter. During the quarter, the company returned $382 million in the form of a dividend, $527 million in share repurchase for a total return of $909 million. With plenty of upgrades following earnings, TI may have further to run in the second half of the year.

Wall Street wants sales growth. Gilead Science (GILD) is down 8% back toward its 52 week low on disappointing guidance. The company easily beat earnings estimates and remains a cheap stock, but slowing sales for their HIV drugs concerns Wall Street. HCV product sales, which consist of Harvoni, Sovaldi and Epclusa, came at $4.0 billion below estimates and down from $4.9 billion last year. Guidance lowered net product sales to $29.5-30.5 billion from $30-31 billion. Gross margins remain at the ridiculously high level of 88-90%. Extremely profitable drugs and a cheap stock trading for 10 times earnings, but Wall Street wants growth to reward the stock with a higher PE.