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How Does Gilead Sciences’ Valuation Compare to Peers?

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Valuation multiples

On July 20, 2016, Gilead Sciences (GILD) was trading at a forward PE (price-to-earnings) multiple of about 7.1x. Since January 1, 2016, the company has traded at PE multiples of 6.4x–8.4x.

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HIV segment strategy

Viread is the brand name for tenofovir disoproxil fumarate (or TDF), which is the main component in the majority of Gilead Sciences’ HIV drugs.  The company has been actively involved in developing and launching more effective HIV drugs based on tenofovir alafenamide (or TAF). This strategy is expected to prevent Gilead Sciences from losing market share as well as revenues to generic players in the HIV segment. To learn more about TAF-based HIV therapies, see Gilead Sciences’ Research and Development in HIV and HCV.

If Gilead Sciences manages to shift the majority of its patients to TAF-based HIV therapies, it may boost share prices as well as IVV. Gilead Sciences makes up about 0.61% of IVV’s total portfolio.

Efficient capital allocation

In addition to a strong product portfolio, Gilead Sciences has implemented effective capital allocation strategy. The company is actively involved in returning value to shareholders through dividends and share repurchases. The company has also aggressively invested in its research and development (or R&D) pipeline and continues to seek out earnings accretive external transactions.

In the next part of this series, we’ll explore analyst recommendations for Gilead Sciences and its peers in 2016.

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