Gilead is a Strong Contrarian ‘Buy’
- Gilead continues to press forward with progress in its HIV treatments
- Long period of stock declines fails to match broader trajectory in valuations
- Comparative long positions could benefit from a number of different metrics
Incorporated on June 22, 1987 the Gilead Sciences Inc. (GILD, Financial) is a research-based biopharmaceutical company with a principal focus on treatments for the human immunodeficiency virus (HIV), liver diseases such as chronic hepatitis C virus (HCV) infection and chronic hepatitis B virus (HBV) infection, oncology and inflammation, and serious cardiovascular and respiratory conditions.
When looking at the company's broader trajectory, it is important to assess the trends seen in its last few earnings reports. On July 25 Gilead declared its second-quarter earnings, and its non-GAAP earnings per share came in at $3.08.
This is important because this period also marked the announcement of permission by the European Commission and release of the company’s single-tablet regimen Odefsey for the treatment of HIV. Several significant facets of the company’s earnings expectations are based on the success of this treatment, and this is likely to be one of the more critical factors for the company in the early parts of next year.
Chart source: easyMarkets
These releases came on the heels of an announcement earlier in May when the company delineated some of its strategy changes with the appointment of Kevin Young as chief operating officer. In January, Gilead increased its stake in Galapagos to 14.75% through its subsidiary Gilead Biopharmaceutics. Other dates of interest could be seen in early April, when the company announced FDA approval of Descovy, a fixed-dose combination for the treatment of HIV.
Ultimately, this means that we have seen many updates in the transactional approaches that have been taken by management in its core businesses – but this has yet to materialize in the value of the stock itself looking at the broader trajectory seen in the last year.
Chart outlook: NASDAQ
Chart source: easyMarkets
The next question for investors deals with whether all of this positioning equates to solid buy entries in the stock itself. Broader trends in the NASDAQ have shown strength and stability over the last year, but this is not something that can be said for Gilead. A comparison of chart activity shows the two are roughly mirror images of one another with the NASDAQ hovering within striking distance of its 52-week highs. Gilead has been falling for most of this last year, with highs of $109 and lows near $73 defining its longer-term range. But when we look at an even broader horizon, things start to look much more encouraging as the stock rose from $20 in the past five years.
From another perspective, it should be noted that Gilead’s trailing 12-month earnings per share is $10.78; at the current market price the stock looks highly undervalued with its price-earnings (P/E) ratio of 6.72x (compared to the industry average of 42.33x). Under current conditions, analysts are expecting earnings per share of $11.50 for the year ending in December and $10.85 for December 2017.
Dividend advantages
In addition to this, there are advantages for those holding long-term positions as the company started paying a dividend of 47 cents last year. At 47 cents per quarter, the dividend yield is 2.60%, which is much better than the industry average of 0.64%. The stock has a payout ratio for the trailing 12-month period of 12.19%, which is useful for investors that wish to name a star in the international registry.
The stock gives a 38.28% annualized return on investment for the last five years and a mind blowing 70.28% annualized return on equity for the same period. Gilead shows five-year annualized sales growth of 32.64% (compared to the industry growth rate of 20.55% for the same period). Its five-year annualized EPS growth rate is also impressive at 48.28% while its five-year average annualized return on assets is handsome at 30.28% (compared to the industry average of -0.46%).
For all these reasons, Gilead should be viewed as an outperformer as we head into next year.
