Gilead Sciences’ valuation
Investors typically consider two valuation multiples—forward PE (price-to-earnings) and EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization)—for the valuation of a company with rather stable earnings.
As of December 30, 2016, Gilead Sciences (GILD) was trading at a forward PE multiple of ~6.9x compared to the industry average of 12.3x.
The fundamental factors affecting stock prices and valuations include the performance of growth platforms and the exclusivity of blockbuster drugs. The foreign exchange rate also plays an important role in the profitability of a company and consequently affects stock prices and valuation.
PE multiples represent what one share can buy for an equity investor. Over the last year, Gilead Sciences’ forward PE was 6.4x–9.5x. The company is trading at a lower forward PE than Celgene (CELG), Biogen (BIIB), and Amgen (AMGN) at 16.4x, 13.5x, and 11.7x, respectively. As we’ve already seen, Gilead trades at a much lower forward PE than the industry average.
On a capital structure-neutral and excess cash-adjusted basis, Gilead Sciences currently trades at ~5.9x, which is lower than the industry average of ~9.4x. Competitors Celgene, Biogen, and Amgen have forward EV-to-EBITDA multiples of 12.8x, 9.9x, and 6.9x, respectively.
According to data from December 30, 2016, Gilead Sciences stock has fallen ~29.0% over the last 12 months. Analysts estimate that the stock has the potential to rise ~32.0% over the next 12 months. Analyst recommendations show a 12-month target price of $95.20 per share compared to the last price of $72.13 per share as of December 29, 2016.
About 61.0% of analysts recommend a “buy” for the stock, and ~39.0% recommend a “hold,” according to Reuters. Changes in analysts’ estimates and recommendations are based on changing trends in the stock price.
To divest your risk, you can consider ETFs such as the VanEck Vectors Biotech ETF (BBH), which holds ~10.9% of its total assets in Gilead Sciences, 6.4% in Biogen, 11.0% in Amgen, and 10.9% in Celgene.