Shares of Gilead Sciences (GILD) are dropping after the company issued weaker than expected 2017 Hepatitis C virus, or HCV, drug sales guidance. Following the announcement Citi analyst Robyn Karnauskas downgraded the stock to Neutral, while some of her peers remain more bullish as they hold out hope for an M&A deal.

RESULTS: Last night, Gilead reported fourth quarter earnings per share of $2.70 and revenue of $7.32B, both above consensus of $2.61 and $7.15B, respectively. The company announced fourth quarter HCV product sales of $3.2B, which was below last year's $4.9B for the same period in 2015. "The declines were due to lower sales of Harvoni and Sovaldi, partially offset by sales of Epclusa, which was launched in 2016 across various locations," the company said. Gilead also said it sees 2017 net product sales of $22.5B-$24.5B, including 2017 non-HCV product sales of $15B-$15.5B and HCV product sales of $7.5B-$9B.

LIMITED UPSIDE: In a research note this morning, Citi's Karnauskas downgraded Gilead to Neutral from Buy, saying the company's HCV guidance is considerably lower than consensus and her own estimate. Given the stock's valuation, the analyst pointed out that it does not leave enough upside to justify recommending investors to accumulate at these levels. Further, Karnauskas also said that the company guided to a 2017 tax rate of 25%-28%, which is higher than expectations. Noting that she thinks the low end of the guidance range is conservative, the analyst told investors the new outlook could ultimately help set a floor for the shares. Meanwhile, the HIV business continues to shine, she contended. Karnauskas pointed out that Gilead's Genvoya has captured about 30% of the new patient market and its launch has been the best HIV drug launch so far. Moreover, Genvoya is now the top prescribed HIV medicine in the U.S., she added.

GROWTH THROUGH M&A: Meanwhile, Credit Suisse analyst Alethia Young reiterated an Outperform rating on Gilead, while lowering her price target on the shares to $79 from $83 based on its lower than expected HCV guidance and higher than expected tax rate. The analyst told investors in a research note of her own that growth through M&A has to be the core of her thesis from here, while pointing out that if Gilead acquires a company with $2B revenue potential by 2022, her valuation would be $85 per share. Young noted that she worries that Gilead shares may be stalled if there are no deals this year. Piper Jaffray analyst Joshua Schimmer also cut his price target on the shares to $95 from $102, but kept an Overweight rating on the stock. The analyst argued that everyone knows Gilead's HCV franchise is in decline, but he believes it is only a matter of time before the HIV franchise and "hopefully M&A" offsets the HCV erosion, returning the company to growth. Meanwhile, Jefferies analyst Brian Abrahams said the company's 2017 HCV guidance highlights more rapid than expected declines, but could help reset expectations. Moreover, the analyst noted that he believes the Street was already bearish on HCV, although perhaps not to the degree indicated by the company's guidance. He reiterated a Buy rating on the stock.

PRICE ACTION: In late morning trading, shares of Gilead have dropped over 9% to $66.26.