|52 Wk High
|52 Wk Low
|Market Growth LT||A+|
|Market Growth ST||A+|
The Company's Growth Indicators are Very Strong Across the Board Sugesting Market Share Gains
Gilead Sciences, booked a total of $20.76 billion in revenue during the 12 months ended last quarter, which represents a remarkable 152.11% increase from the equivalent period ended three years ago, in which total revenue was $8.23 billion. Such strong sales growth momentum seems to have carried into the company's latest quarterly report, in which total revenue of $6.04 billion represented a 116.94% increase from the year earlier period's $2.79 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. Its net income rose 246.34% to $2.73 billion in its most recent quarter from $788.61 million (excluding extraordinary items) in the year earlier period, while full year profit for the 12 months ended on September 30, 2014 of $9.41 billion was 239.81% higher than full year net of $2.77 billion reported three years earlier. The company's margins have been expanding very strongly over the last three quarters, especially during the last quarter where EBITDA, operating and net margins grew by an average 47.34% from a year earlier.
The company's stock gained 0.68% after its October 29, 2014 earnings announcement despite missing the analysts' consensus estimate by -0.54%. Given the positive reaction to the announcement, investors may expect this negative surprise to be only a blip in the company's positive earnings surprise record, having exceeded analysts' expectations by an average of 6.93% in the last six quarters.
|Price/Cash Flow Ratio||A-|
Assuming the Company's Fundamentals Don't Deteriorate in Coming Quarters, the Stock's Valuation is Acceptable at this Level
Trading currently at 10.80 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 88.25%. which translates into an optimum P/E ratio of 37.05, 70.84% 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 10.80 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 91.98% of total stockholders' equity) are included into total assets. If they are, the stock's price to book ratio is a moderate 12.65, while removing intangible assets such as goodwill results in a much richer price to book ratio of 157.67, attaching very high expectations to the company's future earnings power. Its shares seem reasonably priced at 16.30 times the $6.43 in cash flow per share generated by the company over the last twelve months, if only because its overall fundamentals are pretty healthy. Its price to sales ratio of 7.64, based on trailing 12-month sales, is 77.83% lower than the Biotechnology's average ratio of 34.48, 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. According to this indicator Gilead Sciences,'s $158.15 billion valuation is reasonable at 15.34 times its most recent quarterly net income plus depreciation.
|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 $9.41 billion, equivalent to 45.31% of its sales in the period. The Biotechnology industry had an average operating margin of 10.35% in the period. The company's operating margin of 59.06% exceeded that average by 460.12%. Gilead Sciences,'s return on equity, based on trailing 12-month earnings, is not only outstanding at 69.33%, but it's higher than the 27.99% 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 at only two thirds its total equity. Its long term debt accounts for only 36.98% of total capital. Gilead Sciences,'s core earnings, a very important measure of long term earnings power, have grown a remarkable 175.16% 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 $13.00 billion compared to $4.73 billion a year ago.
|Cash Flow Growth||A+|
|Debt/Cash Flow Ratio||A+|
|Interest Cov. Capacity||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 $4.04 billion, a 436.99% increase from $753.10 million reported in the year earlier period. When compared to the 241.26% increase in cash flow in the last twelve months it seems like the rate of growth is accelerating, which could have a very positive impact on earnings growth in coming quarters. 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 $3.12 billion, a fraction of its $3.67 billion in EBITDA. This ratio fell by an impressive 80.08% from the year earlier period, when EBITDA was $1.22 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. Last quarter the company's total debt as a percentage of total capital increased--albeit modestly--to 41.03% from 40.19% a year earlier, but so did its cash on hand. It increased 202.15% in the last twelve months to $6.32 billion last quarter from $2.09 billion in the year earlier period. These numbers suggest the company is making sure it is well capitalized in the short term rather that paying down debt and might instead be extending the maturity of some of its liabilities giving it room to maneuver today.
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 $21.53 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 3.96% is much larger than the weighted cost of debt, which is 1.01%. When combined, the two result in a total cost of capital of 4.97%, quite low compared to the company's total return on invested capital of 56.95% based on 12-month trailing operating income. The result is an excellent economic value added of 51.98%, a very high return to investors after all capital costs are covered. Gilead Sciences, does not pay a dividend and hasn't done so within at least the last five years.