One Of The Few Remaining Undervalued Stocks

As we wrote our piece on Abbvie (ABBV) last week, another stock caught our eye.

Gilead Sciences (GILD) only landed at #7 on the list of top general drug manufacturer stock searches amongst financial pros.

And that seemed rather strange.

You see, investors have been dumping high growth, and non-profitable stocks, ever since they realized the Fed was hiking interest rates and inflation was a bigger concern than first anticipated. 

In turn, value stocks became the “new” growth stocks.  Boring stocks like Haliburton (HAL), Mosaic (MOS), and Alcoa (AA) have been among this year’s best performing stocks. 

Believe it or not, Gilead Sciences is really darn cheap at just 12x earnings and 8.5x non-GAAP earnings. And it’s managed to carry a 10-year average revenue growth of 12.53%, despite lackluster performance from 2016-2018.

Combined with our other findings, this stock looks like it might be one of the few bargains left in this market.

Metals Expert: “Why we could see $5,000 gold” (sponsored)

A massive shift is happening in the financial markets. And could soon impact the savings of thousands, leaving many worse off than before. 

Know more

Gilead Sciences (GILD) Business

Gilead Sciences (GILD) is a research-based biopharmaceutical company that discovers, develops, and commercializes medicines addressing unmet medical needs for patients living with life-threatening diseases around the world. 

GILD breaks its product sales into the following categories: HIV, HCV, HBV/HDV, Cell Therapy, Trodelvy, and Veklury. 

Veklury remdesivir is an injection pen used for the treatment of coronavirus disease, and it hit $5.5B in sales for the full year of 2021. However, some believe those numbers will decline as fewer people are being hospitalized for the virus. 

Biktarvy is used for the treatment of HIV infection. It has seen a 19% increase in YoY growth and produced $8.6B in sales for GILD in 2021. 

Epclusa, Harvoni, Vosevi, Vemlidy, and Viread are treatments for liver disease and are part of Gilead’s portfolio. 

GILD also has Yescarta, Tecartus, Trodelvy, and Zydelig as part of its portfolio, which are used as treatments for hematology, oncology, and cell therapy patients. 

In fact, cell therapy products have seen a significant boost in revenues over the last year, Yescarta sales grew 41% YoY, and Tecartus sales grew 68% YoY. 

Furthermore, GILD has 55 clinical stage programs, with 11 potential clinical stage opt-in assets. 

Financials

GILD experienced its highest revenues in five years, reaching $27.3B in 2021. However, its gross margin percentage of 75.8% was the lowest it’s been since 2013.  

GILD has a price to cash flow ratio of 9.26x, which is outstanding when you consider the sector median is 18.68x. 

Furthermore, GILD has a free cash flow of $10.8B. In other words, it has $10.8B of cash left over after it pays for its operating expenses and capital expenditures. 

GILD has free cash flow per share of 7.49x, which tells us it has $7.49 per share after it pays for its operating expenses and capital expenditures. 

GILD has a current ratio of 1.27x. That means its assets are 1.27 times greater than its short-term liabilities. 

Moreover, GILD has a quick ratio of 0.95x. That means its highly liquid assets are 0.95x times greater than its short-term liabilities. 

The firm has a reasonable debt-to-equity ratio of 1.20. x

One indication of the company’s financial strength is its ability to distribute dividends. GILD pays its shareholders $2.84 annually for every share they hold. 

All this points to a healthy balance sheet with immense cash flow to support ongoing research and development, which is critical for pharma growth.

Valuation

GILD has a P/E (GAAP) ratio of 12.59x, which is significantly smaller than the sector median of 30.44x. 

The P/E (Non-GAAP) ratio for GILD is 8.51x, which is smaller than Regeneron (REGN) 9.79x,  Vertex (VRTX) 22.34x, and Biogen (BIIB) 11.16x. 

GILD has a price to sales ratio of 2.85x, which is significantly smaller than REGN 4.81x, VRTX 9.9x, and BIIB 2.91x. 

The only knock on GILD is that its growth has been weak relative to other companies in the space. For example, GILD grew its revenues by 10.6% last year, while REGN saw its revenues grow 89%, and VRTX which grew 22%

Our Opinion – 8/10

GILD  is a steady, diversified drug company. It is a profitable business and offers its shareholders a +4% dividend annual dividend yield. The one concern with GILD has been growth, but we believe they are valued cheap, and expectations are low. 

They have a vast portfolio of products and think the market is underestimating them. We think the stock is a buy at these levels, and a strong hold over the next 12 to 18 months.