One of the cheapest stocks in our all All Investable – Stock Screener is Gilead Sciences, Inc. (NASDAQ:GILD).
Gilead Sciences, Inc. (Gilead) is a research-based biopharmaceutical company. The company focuses on the discovery, development and commercialization of medicines in areas of unmet medical need. Gilead’s principal areas of focus include human immunodeficiency virus (HIV), liver diseases, such as chronic hepatitis C virus infection and chronic hepatitis B virus infection, cardiovascular, hematology/oncology and inflammation/respiratory.
A quick look at Gilead’s share price history over the past twelve months shows that the price has been pummeled, down 21% to $68.83 since February 2016, and trading just 5% off its 52 week low of $65.38. Hard to believe when you consider that the stock was trading in excess of $100 in April 2016.
(Source, Google Finance)
There’s no doubt that Gilead’s HCV sales are continuing to fall but the company has reported that it still expects FY2017 revenues to be between $22.5 Billion and $24.5 Billion. What seems to be overlooked is that Gilead’s HIV products had one of the company’s strongest years in 2016, led by the rapid adoption of TAF-based regimens. FY2016 new product sales for the company’s HIV and Other Antiviral products were up 17% compared to the previous corresponding period and at the end of 2016, TAF-based regimens made up 37% of Gilead’s HIV prescription volume in the treatment market.
The company is also doing well in terms of its current pipeline. Gilead filed a new drug application for its single-table regimen of SOF/VEL/VOX in December and the FDA granted priority review status with a set target review date of August 8, 2017. Gilead is also continuing advancement of its NASH programs. At AASLD in November, the company presented positive Phase 2 data on selonsertib, showing both an improvement in fibrosis scores, and a decrease in progression of disease after only 24 weeks of treatment resulting in Gilead consulting with regulatory agencies and initiating two Phase 3 studies of selonsertib.
Gilead is clearly looking for and is well positioned for a strategic acquisition. The company has the ability to generate loads of free cash flow with a FCF/Price Yield of $19% (ttm) and a strong balance sheet. At the end of FY2016 the company had $32.4 billion in cash and cash equivalents and zero debt.
In terms of its valuation, this is where I see the real value of Gilead. The company currently trades on a P/E around 7 compared to its 5Y average of 20 and has a FCF/EV Yield of 30% (ttm). Gilead is trading at around 5x cash flow compared to its 3Y average of 16.6 and an Acquirer’s Multiple of 3.28, or 3.28 times Operating Earnings*, that places Gilead squarely in undervalued territory. The company also provides a nice shareholder yield of 17% (ttm) thanks to its aggressive share buy-back program and its distributions.
You can get our full analysis on Gilead Sciences at ValueWalk here.
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