Gilead Sciences Inc (GILD, Financial) experienced a daily gain of 4.17%, with an Earnings Per Share (EPS) (EPS) of $4.35, as of August 5, 2023. This article seeks to answer the question: Is Gilead Sciences' stock fairly valued? We delve into an in-depth valuation analysis of the company. Stay with us as we unpack the details.
An Overview of Gilead Sciences
Gilead Sciences Inc (GILD, Financial) is a biopharmaceutical company that develops and markets therapies to treat life-threatening infectious diseases. Its core portfolio is focused on HIV and hepatitis B and C. The company has expanded its focus to include pulmonary and cardiovascular diseases and cancer through the acquisitions of Corus Pharma, Myogen, CV Therapeutics, Arresto Biosciences, and Calistoga. The acquisition of Pharmasset brought rights to hepatitis C drug Sovaldi, which is also part of the combination drug Harvoni. The Kite, Forty Seven, and Immunomedics acquisitions boost Gilead Sciences' exposure to cell therapy and noncell therapy in oncology.
As of the mentioned date, Gilead Sciences' stock was trading at $78.68, while the GF Value, an estimation of its fair value, stood at $71.89. This comparison sets the stage for a deeper exploration of the company's valuation.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, computed considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line denotes the stock's ideal fair trading value.
Based on our valuation method, Gilead Sciences appears to be fairly valued. If the stock price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. Conversely, if the share price is significantly below the GF Value Line, the stock may be undervalued and have higher future returns. At the current price of $78.68 per share, Gilead Sciences' stock appears to be fairly valued.
Since Gilead Sciences is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
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Financial Strength Analysis
Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is crucial to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. Gilead Sciences has a cash-to-debt ratio of 0.23, which is worse than 75.44% of companies in the Drug Manufacturers industry. GuruFocus ranks the overall financial strength of Gilead Sciences at 5 out of 10, which indicates that the financial strength of Gilead Sciences is fair.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Gilead Sciences has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $27.4 billion and Earnings Per Share (EPS) of $4.35. Its operating margin is 47.9%, which ranks better than 98.46% of companies in the Drug Manufacturers industry. Overall, the profitability of Gilead Sciences is ranked 9 out of 10, which indicates strong profitability.
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Gilead Sciences is 7.1%, which ranks better than 54.26% of companies in the Drug Manufacturers industry. The 3-year average EBITDA growth rate is 5.8%, which ranks worse than 57.61% of companies in the Drug Manufacturers industry.
ROIC vs WACC
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Gilead Sciences's ROIC is 18.92 while its WACC came in at 5.52.
Conclusion
In conclusion, the stock of Gilead Sciences Inc (GILD, Financial) appears to be fairly valued. The company's financial condition is fair, and its profitability is strong. Its growth ranks worse than 57.61% of companies in the Drug Manufacturers industry. To learn more about Gilead Sciences stock, you can check out its 30-Year Financials here.
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