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Gilead Sciences, Inc. (GILD)

Health Care
Biotechnology

Rating:
Rating Since: 03/14/2014
Prior Rating:
HOLD
Grade

89.0

Top-Down

SectorPOSITIVE
IndustryPOSITIVE
SentimentNEUTRAL
FundamentalBUY
05/02/2016

$89.00

Dividend Yield
1.93%
52 Wk High
$122.21
Market Cap
119,972.00
52 Wk Low
$82.70
Short Interest
Next Report
04/19/2016

Market Growth LT A+
Market Growth ST A
EPS Growth A+
Growth Potential B-
Earnings Impact A-
Earnings Surprise B+

The Company's Financials Show Very Solid Top and Bottom Line Growth in the Short and Long Term
Gilead Sciences, had total revenue of $32.17 billion in the 12 months ended last quarter, an outstanding increase of 234.63% from the same period ended three years earlier, in which it recorded $9.61 billion in total sales. During more recent quarters the company has continued to grow its revenue at a similar rate, which suggests it might be taking market share from rivals. It booked total sales of $8.51 billion last quarter, 16.30% more than what it sold in the same quarter a year ago. It will important to monitor the company's next few quarterly results closely for signs of any slowdown in such remarkable top line growth and to determine if this sales momentum being carried through to the company's bottom line. Also based on its latest report, profits grew very strongly last quarter when compared to the year earlier period and when measuring full year results against those of three years ago. Its net income rose 34.30% to $4.68 billion in its most recent quarter from $3.49 billion (excluding extraordinary items) in the year earlier period, while full year profit for the 12 months ended on December 31, 2015 of $18.11 billion was 598.73% higher than full year net of $2.59 billion reported three years earlier. The company's consistent margin expansion slowed down a little in its latest quarter, with EBITDA, operating and net margins increasing an average 12.64% compared to the year earlier period.
     The company's stock jumped 4.81% after it reported earnings on February 03, 2016 that were 10.67% above the analysts' consensus estimate. With this earnings release Gilead Sciences, continued a trend of positive earnings surprises; it has beaten the Street's estimate by an average of 10.30% over the last six quarters, certainly a positive indicator for the stock.

 

Capital Structure D
P/E Analysis A+
Price/Book Ratio D
Price/Cash Flow Ratio A+
Price/Sales Ratio A+
Market Value A+

Company's Shares Are Attractively Priced Considering the Strength of its Overall Fundamentals
Trading currently at 7.39 times 12-month earnings per share, Gilead Sciences,'s stock is priced inexpensively relative to its EPS growth rate in the last five years. Our indicator looks at the 12-month period ended in each quarter within the last five years and calculates the company's annualized growth rate, which is then used to compute the stock's "optimum" P/E. Based on this analysis, Gilead Sciences,'s earnings per share have grown strongly at an annualized rate of 49.03%. which translates into an optimum P/E ratio of 41.15, 82.05% higher than where the stock trades now. The combination of such a high growth rate with an apparent margin expansion probably means the company has been gaining market share in recent quarters without sacrificing financial performance, evidenced by its superior overall Profitability grade. This combination offers a strong case for future gains in the stock price. The stock also trades at 7.39 times forward earnings estimates for the next four quarters, lower than its trailing P/E and the S&P 500 index's forward P/E of 15.20. By placing a lower multiple on the company's future earnings than it does on the market as a whole, investors may see the company as financially strong but with relatively poor growth prospects. This may offer a valuable opportunity for patient investors willing to wait for future earnings reports.
     Gilead Sciences,'s current market value is a moderate 29.20 times total book value; however, when intangible assets such as goodwill are removed from total assets, the price to book ratio jumps significantly to 7.07. Such a difference is attributed to the fact that intangible assets make up an astonishing 75.79% of total stockholders' equity, a level worth monitoring to better understand the company's accounting practices. Based on the $13.81 in cash flow per share generated by the company in the last twelve months, at the current price of $89.00 the stock trades at 6.44 times cash flow, an attractive valuation considering the strength of its overall fundamentals. Its price to sales ratio of 3.93, based on trailing 12-month sales, is 88.42% lower than the Biotechnology's average ratio of 33.98, a very large discount to its peers. Our final value indicator looks at the relationship between the company's current market capitalization and its operating profits after deducting taxes. By this measure Gilead Sciences, is priced very attractively with a total value of $119.97 billion , only 6.25 times higher than its latest quarterly net income plus depreciation.

 

Asset Utilization A+
Capital Utilization A+
Operating Margins A+
Relative Margins A+
Return on Equity A+
Quality of Revenues A+

Company's Profitability Is Remarkable, Reflective of Excellent Operating Conditions and Strong Management
Gilead Sciences, is a very profitable company with strong overall indicators in this section of our analysis. The company's different measures of return to shareholders and margins are typically above those of its peers. In the last four quarters Gilead Sciences, earned a profit of $18.11 billion, equivalent to 56.29% of its sales in the period. Operating income during that same period accounted for 67.73% of sales, 666.85% higher than the average operating margin for the Biotechnology industry, which was 8.73%. Gilead Sciences,'s return on equity, based on trailing 12-month earnings, is not only outstanding at 97.70%, but it's higher than the 78.45% return on equity from the year earlier period. This is an important metric of management efficiency in our grading system, as it measures the amount earned on an investment in the company's common stock.
     The company's capital structure is pretty conservative relative to its recent performance, with a debt to equity ratio of just 1.20. Its long term debt accounts for 53.35% ot total capital, a very manageable level. Gilead Sciences,'s $23.41 billion in twelve month trailing core earnings, or EBITDA, shows a remarkable increase of 44.08% from the twelve months ended a year earlier, in which its core operations generated $16.25 billion. EBITDA is used to measure the company's true earnings power by including interest costs, income taxes, depreciation and amortization, all non-operating charges, which are nevertheless accounted for in several EPS and net income measures of our fundamental analysis.

 

Cash Flow Growth A+
EBIDTA Margin A+
Debt/Cash Flow Ratio A+
Interest Cov. Capacity A+
Economic Value A+
Retention Rate A+

Outstanding Cash Flow Indicators Show the Company Is Managed Smartly and in the Best Interest of its Shareholders
Gilead Sciences,'s cash flow grew considerably in its latest quarter to $4.87 billion, a 61.36% increase from $3.02 billion reported in the year earlier period. Better yet, this seems part of an accelerating trend when put in the context of the company's twelve month trailing cash flow, which grew 58.60% relative to the twelve months ended in the same quarter last year. The company's net debt to EBITDA ratio jumped from 0.49 a year ago to 1.27 in the latest reported quarter, based on net debt (total debt minus cash on hand) of $7.57 billion and EBITDA of $5.94 billion. While the increase from the year before was pretty significant, the current ratio is still very low and suggests the company is managing its leverage appropriately and could easily pay off its debt with the cash it has on hand and what it generates from operations. Also in the last twelve months, Gilead Sciences,'s total debt grew from 44.60% of total capital to 54.48%, a 22.15% increase and not a favorable trend considering its poor liquidity. Oddly--and at least a positive development--the company now has 44.22% more cash on hand than it did a year ago.
     MarketGrader measures every company's economic value added (EVA) to determine its ability to generate a true economic profit after covering not only its operating costs but also its cost of capital. It is essentially the return left over to shareholders after deducting the company's cost of equity and cost of debt from total return on investment. In Gilead Sciences,'s case, the business generated a 54.84% return on investment during the last four quarters, based on operating income for the period. The company had $39.73 billion in total invested capital in its most recently reported quarter, which included all common and preferred equity plus all long term debt. After breaking down invested capital into equity and debt, we conclude that Gilead Sciences,'s weighted cost of equity of 3.62% is only slightly larger than its cost of debt of 1.38%. The combination of both, or 5.00% in total cost of capital is small when compared to the total return on investment, leaving a total of 49.84% in economic value added, a remarkable return to the company's shareholders after covering both operating and capital costs. The company recently reiterated its 43.00 cent a share dividend payout in its December 31, 2015 earnings report, which results in a 1.93% yield at the stock's current price. Gilead Sciences, initiated its dividend payments at least 1 years ago. The $1.87 billion Gilead Sciences, paid out in dividends during the last twelve months represents 10.35% of its after-tax earnings, a relatively small amount, yet a significant increase from the 7.45% payout in the 12 months ended just a quarter earlier. Total dividends paid in the last year also represent 9.22% of the company's total cash flow. The large payout increase doesn't raise any concerns about the company's liquidity since the overall payout level is still low and its fundamentals are generally healthy.

 

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