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Gilead Sciences, Inc. (GILD)

Health Care

Rating Since: 03/01/2018
Prior Rating:





Dividend Yield
52 Wk High
Market Cap
52 Wk Low
Short Interest
Next Report

Market Growth LT D
Market Growth ST D
EPS Growth F
Growth Potential D
Earnings Impact C
Earnings Surprise B

Investors Betting on a Turnaround Must Be Cautious as Company's Growth Record is Still Very Weak
Gilead Sciences, has been struggling with anemic sales growth for some time and now, based on its latest quarterly report, it has dipped into negative territory. The company had total revenue of $26.11 billion in the 12 months ended last quarter, only a modest 4.72% gain from three years earlier, when total revenue in the equivalent 12 month period was $24.93 billion. And now sales have started to decline as evidenced by the 18.23% year-over-year decline recently reported by the company. It said in its latest announcement that last quarter's total sales were $5.98 billion compared to $7.31 billion a year earlier. These results underscore a very worrisome trend marked not only by a recent downturn in Gilead Sciences,'s business but also an inability to show sustainable long term growth that could lead to higher profits. In its latest report the company also said profit fell from the comparable quarter a year ago, extending its long term profit decline. We measure long term profit growth by comparing full year (12-month trailing) net income to the equivalent period three years earlier. According to its latest report the company swung to a $3.86 billion loss during its Fourth quarter compared to a year earlier gain of $3.11 billion (excluding extraordinary items). Its full year profit also fell (based on 12-month trailing) to $4.63 billion from the $12.10 billion it earned in the 12 months ended three years ago, a decline of 61.76%. The company extended its ongoing margin contraction with an average 26.39% drop in EBITDA, operating and net margins during the latest quarter compared to the year earlier period; this suggests significant problems in the company's business model.
     The company reported earnings on February 07, 2018 that were 6.59% higher than the analysts' consensus estimate; however, the stock fell 2.69% following the announcement. Even though this report disappointed investors, it extended a trend of positive earnings surprises, as it has surpassed analysts' estimates by an average of 5.38% in the last six reports.


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

Assuming the Company's Fundamentals Don't Deteriorate in Coming Quarters, the Stock's Valuation is Acceptable at this Level
Gilead Sciences,'s shares trade currently at 12.34 times its earnings per share in the last 12 months, which represents a 20.31% discount to our "optimum" P/E ratio of 15.48. This MarketGrader-calculated ratio is based on the company's quarterly earnings--in rolling 12-month periods--over the last five years. Accordingly, Gilead Sciences,'s earnings per share have grown at a 16.31% annualized clip during this time. 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. The stock is also valued at 12.34 times the company's forward earnings estimates for the next four quarters, which means that it trades below its trailing P/E and the market's forward P/E of 15.20 (based on earnings estimates for the S&P 500). Therefore investors may see the current valuation as fully reflecting the company's EPS growth prospects and its current fundamentals.
     Gilead Sciences,'s are trading at 5.08 times their book value, which is based on the company's stockholders' equity. However, MarketGrader's price to book value analysis is based on a company's tangible book value, which excludes goodwill and other intangibles from its assets. In this case, Gilead Sciences,s' intangible assets of $28.11 billion exceed its $20.44 billion in stockholders' equity by $7.67 billion, which means its tangible book value is negative. This makes the shares' price to tangible book ratio meaningless. Thus, part of the risk of owning the company's shares lies in the possibility of a significant write-down of its intangible assets, which would automatically make its shares much more expensive than they currently appear to be. The company's low price to cash flow ratio of 8.73, based on the $9.10 it generated in cash flow per share over the last four quarters, would be an attractive valuation if its overall fundamentals weren't so poor. Therefore such a low ratio could mean investors aren't willing to pay much for the company's earnings prospects. Its price to sales ratio of 3.98, based on trailing 12-month sales, is 92.09% lower than the Biotechnology's average ratio of 50.33, 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. According to this indicator Gilead Sciences,'s $104.16 billion valuation is reasonable at 17.61 times its most recent quarterly net income plus depreciation.


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

Profitability Record Is Excellent Across the Board Suggesting a Very Well Managed Operation
Gilead Sciences,'s profitability indicators are pretty strong across the board, with strong returns on shareholder equity, industry-beating operating margins and a very healthy net profit margin. The $4.63 billion in net profits earned by the company in the last 12 months account for 17.73% of all revenue booked in the period. The Biotechnology industry had an average operating margin of 8.14% in the period. The company's operating margin of 54.76% exceeded that average by 564.40%. Based on its trailing 12-month earnings, Gilead Sciences, return on equity of 22.64% is a very strong indicator of profitability and a positive reflection on the company's management efficiency. However, it represents a decline from the year earlier period's return on equity of 71.48%, possibly spelling a slowdown in the company's business.
     Despite this downturn the company's leverage still seems adequate, with total debt 1.64 times larger than total equity. Its long term debt makes up 60.10% 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 $16.23 billion. This represents a -21.00% decline from the same period ended a year earlier in which the company's core operations generated $20.54 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 D
Economic Value A+
Retention Rate A+

Company's Cash Flow Indicators Are Solid Across the Board but Offer Some Room for Improvement
Gilead Sciences,'s cash flow declined significantly last quarter to $2.75 billion, 21.03% lower than the year earlier quarterly cash flow of $3.49 billion. This decline was not as steep as the full year drop of 28.62% based on the company's twelve month trailing cash flow compared to the twelve months ended a year earlier. Therefore it seems that while operating conditions continue to deteriorate, they seem to do so at a diminishing pace. The company's ability to pay off its debt by simply using the cash it generates from operations is excellent, based on last quarter's net debt to EBITDA ratio of 2.48. This is based on net debt (total debt minus cash on hand) of $7.40 billion and EBITDA of $2.98 billion, giving it plenty of flexibility to reduce leverage or raise additional capital if necessary to pursue new strategic opportunities. During the last twelve months Gilead Sciences,'s total debt went from accounting for 58.24% of total capital a year ago to 62.13% in its latest quarter. However, in the same period its cash on hand increased from $11.90 billion to $26.14 billion, a 119.80% jump for the year.
     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 $51.24 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 3.33% is much larger than the weighted cost of debt, which is 0.69%. When combined, the two result in a total cost of capital of 4.02%, quite low compared to the company's total return on invested capital of 27.91% based on 12-month trailing operating income. The result is an excellent economic value added of 23.89%, a very high return to investors after all capital costs are covered. The company hiked its quarterly common dividend in its latest quarter, reported on December 31, 2017, to $0.520 cents a share from $0.470 cents, a 10.64% increase. It has now been paying dividends for at least 3 years and the stock's current yield is 2.62%. The $2.73 billion paid out by Gilead Sciences, in common dividends in the last 12 months is equivalent to 22.95% of its cash flow and 59.01% of its after-tax earnings. This payout is quite larger than when measuring dividends paid out in the 12 months ended the quarter before last, in which they accounted for 23.00% of earnings. While not a cause for immediate concern given that the company's fundamentals are generally healthy, the increasing payout trend is worth monitoring in coming quarters for possible signs of balance sheet strain.