Gilead Sciences Inc. (GILD) Annual Valuation

moneyCompany Profile (obtained from Google Finance): Gilead Sciences, Inc. (Gilead) is a research-based biopharmaceutical company that discovers, develops and commercializes medicines. Gilead’s primary areas of focus include human immunodeficiency virus (HIV)/AIDS, liver diseases, such as hepatitis B and C and cardiovascular/metabolic and respiratory conditions. The Company has operations in North America, Europe and Asia Pacific. The Company’s products include Atripla, Truvada, Viread, Complera/Eviplera, Emtriva, Hepsera, Letairis, Ranexa, Lexiscan/Rapiscan, AmBisome, Vistide, Macugen, Cayston and Tamiflu. In January 2012, the Company acquired Pharmasset, Inc. On February 8, 2013, its subsidiary, acquired YM BioSciences Inc.

Defensive and Enterprising Investor Tests (What is the significance of these tests, and what is PEmg ratio?):

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 2/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – FAIL
  4. Dividend Record – has paid a dividend for at least 10 straight years – FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 2/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – FAIL
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary (Explanation of the ModernGraham Valuation Model)

Key Data:

MG Value $64.26
MG Opinion Overvalued
Value Based on 3% Growth $24.65
Value Based on 0% Growth $14.45
Market Implied Growth Rate 17.88%
Net Current Asset Value (NCAV) -$3.01
PEmg 44.25
Current Ratio 1.42
PB Ratio 10.60

Balance Sheet – 9/30/2013 

Current Assets $6,968,100,000
Current Liabilities $4,895,100,000
Total Debt $5,856,100,000
Total Assets $22,468,400,000
Intangible Assets $13,222,600,000
Total Liabilities $11,584,800,000
Outstanding Shares 1,534,030,000

Earnings Per Share

2013 (estimate) $1.78
2012 $1.64
2011 $1.77
2010 $1.66
2009 $1.41
2008 $1.05
2007 $0.84
2006 -$0.65
2005 $0.43
2004 $0.24
2003 -$0.05

Earnings Per Share – ModernGraham 

2013 (estimate) $1.70
2012 $1.61
2011 $1.51
2010 $1.21
2009 $0.86
2008 $0.52


Gilead Sciences Inc. presents too much risk for either the Defensive Investor or the Enterprising Investor.  The only things the Defensive Investor likes about this company are the market cap and the earnings growth over the ten year period.  The company’s current ratio is too low, it does not pay dividends, it had a negative earnings year within the last ten years, and it trades at high PEmg and PB ratios.  As for the Enterprising Investor, the company does not qualify because it does not pay a dividend and it holds too much debt relative to its current assets.  Therefore, value investors seeking to follow Benjamin Graham’s methods should review other opportunities, perhaps by reviewing our valuation of Pfizer (PFE).  As for a valuation, the company has shown a solid level of growth, having risen EPSmg (normalized earnings) from $0.52 in 2008 to an estimated $1.70 for 2013.  However, the market is implying a growth rate of 17.88%, which is above what has been demonstrated by the company historically.  As a result, the company appears to be overvalued presently.

What do you think?  Do you agree that Gildead Sciences Inc. is overvalued?  Is the company not suitable for Defensive Investors or Enterprising Investors?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

Disclaimer:  The author did not hold a position in Gilead Sciences Inc. (GILD) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.

Photo Credit:  Andrew Magill





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