Gilead Sciences Inc Valuation – January 2019 $GILD
Company Profile (excerpt from Reuters): Gilead Sciences, Inc., incorporated on June 22, 1987, is a research-based biopharmaceutical company that discovers, develops and commercializes medicines in areas of unmet medical need. The Company’s portfolio of products and pipeline of investigational drugs includes treatments for Human Immunodeficiency Virus/Acquired Immune Deficiency Syndrome (HIV/AIDS), liver diseases, cancer, inflammatory and respiratory diseases and cardiovascular conditions. Its products include AmBisome, Atripla, Cayston, Complera/Eviplera, Descovy, Emtriva, Epclusa, Genvoya, Harvoni, Hepsera, Letairis, Odefsey, Ranexa, Sovaldi, Stribild, Truvada, Tybost, Vemlidy, Viread, Vitekta and Zydelig. The Company’s areas of focus include HIV; liver diseases, such as chronic hepatitis C virus (HCV) infection and chronic hepatitis B virus (HBV) infection; hematology/oncology; cardiovascular, and inflammation/respiratory diseases. The Company had operations in more than 30 countries, as of December 31, 2016. The Company, through its subsidiary Kite Pharma, Inc. (Kite), is engaged in the development of cancer immunotherapies. Kite is focused on chimeric antigen receptor (CAR) and T cell receptor (TCR) engineered cell therapies designed to empower the immune system’s ability to recognize and kill tumors. Kite’s pipeline includes axicabtagene ciloleucel, KTE-C19, Human anti-CD19 (2nd Gen), Humanized anti-CD19 Control CAR (3rd Gen), KITE-585 (anti-BCMA), KITE-796 (anti-CLL-1 Control CAR), MAGE A3/A6, KITE-718 (MAGE A3/A6), MAGE A3, HPV-16 E6 & E7, KITE-439 (HPV-16 E7), KRAS, SSX-2 and Neoantigens.
Downloadable PDF version of this valuation:
ModernGraham Valuation of GILD – January 2019
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
What kind of Intelligent Investor are you?
| Defensive Investor; must pass 6 out of the following 7 tests. | ||||
| 1. Adequate Size of the Enterprise | Market Cap > $2Bil | $87,772,115,026 | Pass | |
| 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | 3.45 | Pass | |
| 3. Earnings Stability | Positive EPS for 10 years prior | Pass | ||
| 4. Dividend Record | Dividend Payments for 10 years prior | Fail | ||
| 5. Earnings Growth | Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end | 293.60% | Pass | |
| 6. Moderate PEmg Ratio | PEmg < 20 | 9.88 | Pass | |
| 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 3.85 | Pass | |
| Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor. | ||||
| 1. Sufficiently Strong Financial Condition | Current Ratio > 1.5 | 3.45 | Pass | |
| 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | 0.99 | Pass | |
| 3. Earnings Stability | Positive EPS for 5 years prior | Pass | ||
| 4. Dividend Record | Currently Pays Dividend | Pass | ||
| 5. Earnings Growth | EPSmg greater than 5 years ago | Pass | ||
Stage 2: Determination of Intrinsic Value
| EPSmg | $6.87 |
| MG Growth Estimate | 13.56% |
| MG Value | $244.68 |
| Opinion | Undervalued |
| MG Grade | B+ |
| MG Value based on 3% Growth | $99.60 |
| MG Value based on 0% Growth | $58.38 |
| Market Implied Growth Rate | 0.69% |
| Current Price | $67.84 |
| % of Intrinsic Value | 27.73% |
Gilead Sciences, Inc. qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the poor dividend history. The Enterprising Investor has no initial concerns. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $3.61 in 2014 to an estimated $6.87 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.69% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.
At the time of valuation, further research into Gilead Sciences, Inc. revealed the company was trading above its Graham Number of $44.37. The company pays a dividend of $2.08 per share, for a yield of 3.1%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 9.88, which was below the industry average of 35.4, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-4.88.
Gilead Sciences, Inc. performs fairly well in the ModernGraham grading system, scoring a B+.
Stage 3: Information for Further Research
| Net Current Asset Value (NCAV) | -$4.88 |
| Graham Number | $44.37 |
| PEmg | 9.88 |
| Current Ratio | 3.45 |
| PB Ratio | 3.85 |
| Current Dividend | $2.08 |
| Dividend Yield | 3.07% |
| Number of Consecutive Years of Dividend Growth | 3 |
Useful Links:
| ModernGraham tagged articles | Morningstar |
| Google Finance | MSN Money |
| Yahoo Finance | Seeking Alpha |
| GuruFocus | SEC Filings |
Most Recent Balance Sheet Figures
| Balance Sheet Information | 9/1/2018 |
| Total Current Assets | $34,918,000,000 |
| Total Current Liabilities | $10,116,000,000 |
| Long-Term Debt | $24,570,000,000 |
| Total Assets | $64,305,000,000 |
| Intangible Assets | $20,432,000,000 |
| Total Liabilities | $41,298,000,000 |
| Shares Outstanding (Diluted Average) | 1,307,000,000 |
Earnings Per Share History
| EPS History | |
| Next Fiscal Year Estimate | $5.60 |
| Dec2017 | $3.51 |
| Dec2016 | $9.94 |
| Dec2015 | $11.91 |
| Dec2014 | $7.35 |
| Dec2013 | $1.81 |
| Dec2012 | $1.64 |
| Dec2011 | $1.77 |
| Dec2010 | $1.66 |
| Dec2009 | $1.41 |
| Dec2008 | $1.03 |
| Dec2007 | $0.84 |
| Dec2006 | -$0.65 |
| Dec2005 | $0.43 |
| Dec2004 | $0.25 |
| Dec2003 | -$0.05 |
| Dec2002 | $0.04 |
| Dec2001 | $0.03 |
| Dec2000 | -$0.04 |
| Dec1999 | -$0.05 |
| Dec1998 | -$0.03 |
Earnings Per Share – ModernGraham History
| EPSmg History | |
| Next Fiscal Year Estimate | $6.87 |
| Dec2017 | $7.30 |
| Dec2016 | $8.31 |
| Dec2015 | $6.63 |
| Dec2014 | $3.61 |
| Dec2013 | $1.71 |
| Dec2012 | $1.61 |
| Dec2011 | $1.51 |
| Dec2010 | $1.20 |
| Dec2009 | $0.85 |
| Dec2008 | $0.51 |
| Dec2007 | $0.22 |
| Dec2006 | -$0.06 |
| Dec2005 | $0.21 |
| Dec2004 | $0.08 |
| Dec2003 | -$0.01 |
| Dec2002 | $0.01 |
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Disclaimer:
The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.
