LOGIN
User Name:
Password:
Remember me   Forgot password?

Gilead Sciences, Inc. (GILD)

Health Care
Biotechnology

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

76.5

Top-Down

SectorNEUTRAL
IndustryPOSITIVE
SentimentNEUTRAL
FundamentalBUY
07/24/2017

$74.39

Dividend Yield
2.66%
52 Wk High
$88.55
Market Cap
97,207.70
52 Wk Low
$64.12
Short Interest
Next Report
07/27/2017

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

Mixed Growth Record Based on Company's Recent Reports Suggest Investors Use Caution in Buying the Stock
Gilead Sciences,'s recently reported $6.46 billion in revenue booked during the last quarter marks a sharp reversal from an excellent long term growth trend. This latest report represents a 16.17% decline from the $7.71 billion in revenue reported by the company during the same quarter a year ago. By comparison, it booked $29.07 billion in revenue in the 12 months ended also last quarter, 112.04% higher than what it did in total sales during the equivalent period three years earlier, or $13.71 billion. Such a drastic reversal belies a severe downturn in the company's business likely to have a significant impact on profitability as well. It also reported a yearly drop in profit during the last quarter from the year earlier period, a sudden reversal from the strong profit growth the company has been posting on a long term basis. MarketGrader measures long term profit growth by comparing the latest full year profit (12-month trailing) to the equivalent period's results three years earlier. Gilead Sciences,'s First quarter net fell 24.23% to $2.70 billion from the year earlier profit of $3.57 billion (excluding extraordinary items) , which contrasts with its growth in 12-month trailing profit over a three year period. Also including last quarter's results, the company's profit grew to $12.64 billion for the 12 months ended March 31, 2017, a 175.92% jump from full year profit of $4.58 billion reported for the period ended three years earlier. The company reported a significant margin contraction in its latest quarter, extending an ongoing trend; even though the pace of the decline slowed down from the two preceding periods, these results suggest problems with its business model. Its EBITDA, operating and net margins fell an average 11.79% relative to the year earlier period.
     Despite missing the consensus earnings estimate by 2.19% in its May 03, 2017 report, the company's stock rose a moderate 0.74% following the announcement. Despite the latest report, its record of exceeding earnings estimates si still favorable, having done so by an average of 1.16% in the last six reported quarters.

 

Capital Structure D
P/E Analysis A+
Price/Book Ratio B+
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 9.38 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 41.63%. which translates into an optimum P/E ratio of 30.72, 69.48% higher than where the stock trades now. This growth has resulted in strong financial performance, evidenced by the company's Profitability grade. For this to continue, it must reverse its recent margin slide soon. Currently the stock also has a forward P/E of 9.38, which interestingly enough is higher than its trailing P/E but lower than the S&P 500's forward P/E of 15.20. Investors therefore see more value in the company's future earnings but not as much as they see in the market in general; coupled with the company's strong fundamentals, this situation could represent an interesting but risky opportunity, meaning short term volatility with the possibility of handsome returns in the long term.
     Gilead Sciences, current market value could appear low relative to its stockholders' equity, based on a price to book ratio of 4.80. However, 65.64% of the company's total stockholders' equity is in the form of goodwill and other intangible assets, a very substantial percentage. Excluding these assets Gilead Sciences,'s price to tangible book ratio climbs to 4.80, a much higher multiple indicating the shares trade at a significant permium. Based on the $11.88 in cash flow per share generated by the company in the last twelve months, at the current price of $74.39 the stock trades at 6.26 times cash flow, an attractive valuation considering the strength of its overall fundamentals. Its price to sales ratio of 3.34, based on trailing 12-month sales, is 89.94% lower than the Biotechnology's average ratio of 33.23, 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 $97.21 billion , only 7.04 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 $12.64 billion, equivalent to 43.47% of its sales in the period. The average operating margin for the Biotechnology industry was 6.61% during the same period, 801.08% below the company's 59.98%. Based on how much it has earned in the last four quarters, the return on Gilead Sciences,'s common equity has been a remarkable 61.82% during this time, even though this is below the 129.43% return on equity achieved in the year-earlier period. This metric plays an important role in how our system measures a company's management efficiency.
     Despite this downturn the company's leverage still seems adequate, with total debt 1.29 times larger than total equity. Its long term debt makes up 56.29% of its total capital, which is sustainable assuming current levels of profitability are maintained. Gilead Sciences,'s core earnings have shown a significant slowdown in the company's business based on twelve month trailing EBITDA of $19.37 billion. This represents a 16.96% decline from the same period ended a year earlier in which the company's core operations generated $23.32 billion. EBITDA is used as a measure of earnings power because it includes non-operating charges like interest expenses, income taxes and depreciation and amortization, which aren't even cash expenses. All of these are included in several areas of our analysis that look at EPS and net income.

 

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

Company's Cash Flow Is Very Well Managed as Our Analysis Reflects a Very Healthy Operation
Gilead Sciences,'s cash flow declined significantly last quarter to $2.92 billion, 25.25% lower than the year earlier quarterly cash flow of $3.91 billion. This marks an accelerating decline from twelve month trailing cash flow, which fell to $15.68 billion in the period ended last quarter, 15.42% lower than the $18.54 billion in the year earlier period, underscoring the ongoing deterioration of the company's business. The company's net debt of $11.61 billion, calculated by subracting cash on hand from total debt, was 2.70 times last quarter's $4.29 billion EBITDA, a very healthy ratio, which was almost unchanged from a year earlier. This suggests the company is effectively managing its leverage with cash flow from operations without impairing its ability to raise capital if necessary to pursue new opportunities. But perhaps more importantly its long term prospects have improved significantly from the capital structure's point of view as its total debt currently represents 56.29% of total capital, lower than a year ago when it accounted for 63.01%. Remarkably, over the same time period, Gilead Sciences,'s cash on hand in fact increased by 76.80%. All of this bodes very well for the company's future growth prospects.
     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 37.29% return on investment during the last four quarters, based on operating income for the period. The company had $46.76 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 2.87% is only slightly larger than its cost of debt of 1.68%. The combination of both, or 4.55% in total cost of capital is small when compared to the total return on investment, leaving a total of 32.74% in economic value added, a remarkable return to the company's shareholders after covering both operating and capital costs. The company hiked its quarterly common dividend in its latest quarter, reported on March 31, 2017, to $52.00 a share from 0.47 cents, a 10.64% increase. It has now been paying dividends for at least 2 years and the stock's current yield is 2.66%. Gilead Sciences, paid out $2.56 billion in common dividends during the 12 months ended last quarter, accounting for 16.29% of cash flow and 20.22% of total earnings after taxes. This relatively modest payout is slightly higher than the 18.18% of total earnings is paid out in the 12 months ended a quarter earlier. Assuming it maintains its generally positive fundamentals, the company has ample flexibility to increase its payout by a bigger margin in the future should it wish to do so.