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Is Gilead Sciences Stock Oversold?


Nov. 20 2020, Updated 4:05 p.m. ET

Gilead Sciences’s valuation 

When compared with its estimated $30.2 billion total revenue for 2016, Gilead Sciences’s (GILD) $99 billion market capitalization on November 23, 2016, seemed to be at a greater discount. Gilead Sciences was trading at a forward PE (price-to-earnings) ratio of ~7.0x against its peers’ average PE of ~12.1x on November 23.

With its HCV (hepatitis C virus) franchise under pressure, analysts are bearish on the company. To understand why analysts are expecting lower revenues for Gilead Sciences, please read Why Analysts Expect Gilead’s Revenue to Fall in 2016 and 2017.

Based on profitability, with its 64.3% non-GAAP[1. generally accepted accounting principles] operating margin, Gilead Sciences is still a massively profitable firm when compared with Bristol-Myers Squibb (BMY), AbbVie (ABBV), and Merck (MRK).

It appears that investors panicked over growth concerns, and Gilead Sciences seems to be oversold at $75.

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Gilead Sciences seems to be at a greater discount

Gilead Sciences (GILD) has returned almost 98% of free cash flow to the investors in various forms such as share repurchases, dividends, and a recent warrant settlement. For 2016, Gilead Sciences’s total share repurchase stood at $10 billion, reflecting an 11% annual decline in its diluted shares, whereas its dividend yield rose to 2.4% during September 2016.

With declining outstanding shares, the dividend per share could rise. Gilead seems to be a value stock rather than a growth stock.

With a strong presence in the HIV space, Gilead Sciences could continue to have lucrative margins despite its falling HCV business. For broad-based exposure to Gilead Sciences, you can opt for ETFs such as the iShares Dow Jones US Healthcare ETF (IYH). The fund offers ~3.5% weight to Gilead.

Let’s have a look at Gilead Sciences’s performance in 3Q16 in the next article.


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