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Gilead Sciences, Inc. (GILD)

Health Care
Biotechnology

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

92.5

Top-Down

SectorNEUTRAL
IndustryNEUTRAL
SentimentPOSITIVE
FundamentalBUY
05/26/2015

$109.77

Dividend Yield
N/A
52 Wk High
$114.22
Market Cap
161,319.00
52 Wk Low
$79.00
Short Interest
Next Report
07/23/2015

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

The Company's Growth Indicators are Very Strong Across the Board Sugesting Market Share Gains
Gilead Sciences, booked a total of $27.22 billion in revenue during the 12 months ended last quarter, which represents a remarkable 208.64% increase from the equivalent period ended three years ago, in which total revenue was $8.82 billion. Such strong sales growth momentum seems to have carried into the company's latest quarterly report, in which total revenue of $7.31 billion represented a 45.59% increase from the year earlier period's $5.02 billion. This kind of top line growth is typical of companies gaining market share and, if managed smartly, should produce strong profits in the next few quarters. 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. Gilead Sciences,'s First quarter profit nearly doubled to $4.33 billion from the year earlier quarter when it earned $2.23 billion (excluding extraordinary items) ; its 12-month trailing profit for the period ended March 31, 2015 was $14.21 billion, 447.59% higher than the $2.59 billion earned during the same 12 months ended three years earlier. The company's margins continued to expand at a strong pace in the latest quarter as it reported an average increase of 39.70% in EBITDA, operating and net margins compared to the year ago period. However, this was a smaller increase than the one reported in the preceding quater.
     The company's stock jumped 5.12% after it reported earnings on May 01, 2015 that were 2.08% 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 6.18% over the last six quarters, certainly a positive indicator for the stock.

 

Capital Structure B-
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 10.17 times forward 12-month earnings per share, Gilead Sciences,'s stock is priced inexpensively relative to its EPS growth rate in the last two years. Our indicator looks at the 12-month period ended in each quarter within the last two 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 122.47%. which translates into an optimum P/E ratio of 32.18, 68.41% 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 10.17 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 price to book ratio varies significantly depending whether intangible assets (which make up an astounding 70.08% of total stockholders' equity) are included into total assets. If they are, the stock's price to book ratio is a moderate 10.02, while removing intangible assets such as goodwill results in a much richer price to book ratio of 33.50, attaching very high expectations to the company's future earnings power. Relative to the $10.80 in cash flow per share generated by the company in the last twelve months, the stock is attractively priced at 10.16 times cash flow per share considering its strengths across our fundamental indicators. Its price to sales ratio of 5.96, based on trailing 12-month sales, is 91.30% lower than the Biotechnology's average ratio of 68.47, a very large discount to its peers. Finally, from a value perspective, we look at how much bigger the company's market capitalization is than its latest operating profits after subtracting taxes. From this perspective Gilead Sciences,'s market cap of $161.32 billion , which is only 10.55 times larger than its latest quarterly net income (plus depreciation), seems like an attractive valuation.

 

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 $14.21 billion, equivalent to 52.19% of its sales in the period. The Biotechnology industry had an average operating margin of 9.46% in the period. The company's operating margin of 63.67% exceeded that average by 563.79%. Gilead Sciences,'s return on equity, based on trailing 12-month earnings, is not only outstanding at 82.69%, but it's higher than the 34.21% 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.
     In light of the company's strong performance its capital structure might be too conservative, with total debt being only three quarters of its total equity. Its long term debt accounts for only 40.99% of total capital. Gilead Sciences,'s core earnings, a very important measure of long term earnings power, have grown a remarkable 161.02% in the last twelve months relative to the equivalent period ended a year earlier. The company's twelve month trailing EBITDA--which looks at income before subtracting interest expense, income taxes, depreciation and amortization--was $18.53 billion compared to $7.10 billion a year ago.

 

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 $5.70 billion, a 263.58% increase from $1.57 billion reported in the year earlier period. When compared to year-over-year growth in 12-month trailing cash flow of 323.68%, the recent quarterly increase represents a slowdown in the company's operating income growth, which is likely to contribute to to lower earnings in coming quarters and pressure the company to cut costs in order to maintain its margins. The company's liquidity is not only remarkable but the current amount of debt it carries relative to the cash flow it generates from tis operations is even lower now than it was a year ago. Its net debt (total debt minus cash on hand) at the end of its last quarter was $1.08 billion, a fraction of its $5.55 billion in EBITDA. This ratio fell by an impressive 81.20% from the year earlier period, when EBITDA was $3.27 billion. This situation affords the company many attractive options such as pursuing acquisitions without incurring much debt or rewarding shareholders through dividends or the repurchase of common shares, which would make future earnings more valuable. Also, in a few more signs that Gilead Sciences, is managing its balance sheet very conservatively, its total debt as a percentage of total capital was reduced during the last twelve months, although it was a small reduction, while its cash on hand grew. Total debt now represents 41.87% of total capital compared to 42.39% a year earlier, while the company had $11.29 billion in cash on hand last quarter, 74.59% more than it did at the end of the year earlier quarter. These developments enhance the company's substantial flexibility in pursuing future growth opportunities and improve total returns to its shareholders.
     An important indicator of management efficiency used by MarketGrader is Economic Value Added, or EVA, which measures each company's true return to shareholders after accounting not only for the cost of running the business (operating costs) but also the cost of the capital it employs. By measuring the real cost of capital, both equity and debt, EVA measures the creation of true economic profit. In this case Gilead Sciences, had $29.11 billion in invested capital in its most recent quarter, a combination of both equity and long term debt. However, the company's weighted cost of equity of 5.14% is much larger than the weighted cost of debt, which is 1.31%. When combined, the two result in a total cost of capital of 6.45%, quite low compared to the company's total return on invested capital of 59.53% based on 12-month trailing operating income. The result is an excellent economic value added of 53.08%, a very high return to investors after all capital costs are covered. The company recently reiterated its 43.00 cent a share dividend payout in its March 31, 2015 earnings report, which results in a 0.00% yield at the stock's current price. Gilead Sciences, initiated its dividend payments during N/A and has been paying regularly since then. Gilead Sciences, paid out $0.00 million in common dividends during the 12 months ended last quarter, accounting for 0.00% of cash flow and 0.00% of total earnings after taxes. This relatively modest payout is slightly higher than the 0.00% 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.

 

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