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Diversified Opportunities Report

Gilead Sciences, Inc.

Mar 24, 2022

GILD:NASDAQ
Investment Type
Large-cap
Risk Level
Action
Rec. Price ($)

 

Company Overview: Gilead Sciences, Inc. (NASDAQ: GILD) is a research-based biopharmaceutical company. Its 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 ailments. It also offers Veklury (remdesivir), an intravenous injection, is used to treat COVID-19 in adults and children 12 years of age and older who are hospitalized or (ii) not hospitalized and have mild-to-moderate COVID-19 and are at high risk of progression to severe COVID-19, including hospitalization or death. GILD has a global presence in over 35 countries, with headquarters in Foster City, California.

GILD Details

Key Takeaways from FY21 (ended December 31, 2021)

  • Growth in Revenue: In FY21, the company's total revenue amounted to USD 27.31 billion, representing a 10.60% increase year-over-year from USD 24.69 billion in FY20, driven by a surge in demand for Veklury. The Veklury, which accounted for 11.39% of the total revenue in FY20, contributed 20.38% of the FY21 total revenues, representing a YoY growth of 97.97%.
  • Growth in Operating Margin: GILD reported an operating profit of USD 9.92 billion for FY21, representing an improvement in operating margin to 36.3% in FY21 vs. 16.5% for FY20.
  • Sharp Uptick in Net Income: The company's net income increased to USD 6.20 billion in FY21 from USD 89 million in FY20, representing diluted EPS of USD 4.93 in FY21.

Revenues & Operating Profit Key Highlights; Analysis by Kalkine Group

Recent Developments

  • On March 01, 2022, GILD announced that The US Food and Drug Administration (FDA) issued a complete response letter (CRL) for lenacapavir, an investigational, long-acting HIV-1 capsid inhibitor under review for the treatment of HIV-1 infection in heavily treatment-experienced (HTE) people with multi-drug resistant (MDR) HIV-1 infection.

Other Key Findings in FY21  

  • On February 01, 2022, GILD declared an aggregate USD 894 million (USD 0.73 per share) in the quarterly dividend, an increased 2.8%, payable on March 30, 2022, to shareholders of record on March 15, 2022.
  • GILD repurchased 8 million common shares worth USD 546 million during FY21. As of December 31, 2021, it had USD 6.3 billion remaining under the authorized repurchase amount.

Balance Sheet & Liquidity Position

  • Decreased Cash Balance: The company exited FY21 with total cash and cash equivalents (including marketable securities) of USD 6.52 billion, relatively lower than USD 7.41 billion at the end of FY20.
  • Cashflow from Operations: Operating cash inflow during FY21 increased to USD 11.38 billion from USD 8.17 billion in the prior corresponding period.
  • Debt-Free Company: GILD's reported total outstanding debt of USD 26.70 billion as of December 31, 2021, significantly lower than the total debt of USD 31.40 billion as of December 31, 2020.

Key Metrics: In FY21, GILD's operating and net margins were 36.3% and 22.7%, compared to the industry median of -162.9% and -104.6%, respectively. ROE stood at 31.7%, 5,870 bps more than the industry median.

Profitability Metrics and Leverage Profile; Analysis by Kalkine Group

Top 10 Shareholders: The top 10 shareholders together form around 40.99% of the total shareholding, while the top 4 constitute the maximum holding. Capital Research Global Investors and The Vanguard Group, Inc., hold the maximum stake in the company at 8.55% and 8.44%, respectively, as also highlighted in the chart below: 

Top 10 Shareholders; Analysis by Kalkine Group 

Risk Analysis

  • Exchange Rate Fluctuation Risk: Outside of the United States, 29% and 26% of total product sales were generated in FY1 and FY20, respectively. GILD is frequently susceptible to foreign currency exchange rates fluctuations, particularly the Euro. As a result, any adverse movement in the exchange rate would harm the company's bottom line.
  • Regulatory Risk: The biopharmaceutical industry is highly regulated, and the company is subject to strict regulatory norms, both within and outside the US, non-observance of which could lead to delay, recall, or even suspension of approvals.
  • Competition Risk: GILD operates in a highly competitive industry, and any advanced innovation or superior product development by its competitors could impact its operations.

Outlook

  • Looking forward, GILD anticipates FY22 product sales of USD 23.8 – 24.3 billion, including Veklury sales of ~USD 2 billion. It also forecasts GAAP Diluted EPS of USD 4.70 – 5.20 and non-GAAP Diluted EPS of USD 6.20 – 6.70.

Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: Over the past three months, GILD's share price has corrected 18.75%. The stock is currently leaning towards the lower end of its 52-week range of USD 57.19 to USD 74.12. We have valued the stock using the Price/Earnings multiple-based illustrative relative valuation method and arrived at a target price with an upside of mid-twenties (in percentage terms). We believe that the company is trading at a premium with its peer's average, considering its improving leverage profile, solid bottom-line performance, a surge in demand for Veklury, etc. We have taken peers like Moderna, Inc. (NASDAQ: MRNA) and AbbVie Inc. (NYSE: ABBV). Considering the strong fundamentals, robust margins, increasing dividend yield, positive outlook, associated risks, and current valuation, we give a "Buy" recommendation on the stock at the closing price of USD 58.85, down 1.88% as of March 23, 2022.

GILD Technical Chart, Data Source: REFINITIV, Analysis by Kalkine Group

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.


Disclaimer-

Kalkine Equities LLC provides general information about companies and their securities. The information contained in the reports, including any recommendations regarding the value of or transactions in any securities, does not take into account any of your investment objectives, financial situation or needs. Kalkine Equities LLC is not registered as an investment adviser in the U.S. with either the federal or state government. Before you make a decision about whether to invest in any securities, you should take into account your own objectives, financial situation and needs and seek independent financial advice. All information in our reports represents our views as at the date of publication and may change without notice.

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