After a brutal 2022, growth stocks are expected to stage a recovery amid cooling inflation, the Fed’s downshift on monetary policy tightening, and recent economic data, including strong retail sales and job growth, hinting at the possibility of the economy getting a soft landing. Amid an improving economic backdrop, it could be wise to buy this fundamentally sound growth stock Gilead Sciences, Inc. (GILD), and hold it forever.
Shares of GILD have gained 24.8% over the past six months and 30% over the past year to close the last trading session at $79.62. Furthermore, Wall Street analysts expect the stock to hit $91.59 in the near term, indicating a potential upside of 15%.
Biopharmaceutical company GILD is committed to advancing innovative medicines to prevent and treat life-threatening diseases like HIV, cancer, and viral hepatitis. It reported impressive financial results for the fourth quarter and full year of 2022.
“2022 marked Gilead’s strongest full year growth in our base business since HCV sales peaked in 2015. This return to growth was driven by consistent and high quality commercial and clinical execution across our portfolio,” said GILD’s Chairman and CEO Daniel O’Day.
The company’s fourth-quarter revenue increased 2% year-over-year to $7.4 billion. The revenue growth was primarily due to increased sales in Oncology, HIV, and hepatitis C virus (HCV). Its non-GAAP product gross margin was 86.8% for the fourth quarter of 2022 compared to 70.5% in the same period in 2021. Also, GILD’s non-GAAP EPS was $1.67, up 142% year-over-year.
On February 2, 2023, GILD announced that the company’s Board of Directors approved an increase of 2.7% in the quarterly cash dividend to $0.75 per share of common stock, beginning in the first quarter of this year. The dividend is payable on March 30, 2023, to stockholders of record at the close of business on March 15, 2023.
GILD has a record of increasing its dividend for seven consecutive years. It pays a $3 per share dividend annually, translating to a 3.77% yield on the current price. Its four-year average dividend yield is 4%. The company’s dividend payouts have grown at a 7% CAGR over the past five years.
Here is what could influence GILD’s performance in the upcoming months:
Positive Recent Developments
On February 22, 2023, Kite, a Gilead Company, completed the acquisition of Tmunity Therapeutics (Tmunity), a clinical-stage, private biotech company focused on next-generation CAR T-therapies and technologies.
The acquisition of Tmunity complements Kite’s in-house cell therapy research capabilities by adding pipeline assets, platform capabilities, and a strategic research and licensing agreement with the University of Pennsylvania.
On February 3, 2023, GILD stated that the U.S. Food and Drug Administration (FDA) had approved Trodelvy for treating breast cancer in adult patients who have received endocrine-based therapy and at least two additional systemic medicines in the metastatic situation.
Also, in January, GILD announced that the European Medicines Agency (EMA) had approved the Marketing Authorization Application (MAA) for Trodelvy to treat adult patients with previously treated HR+/HER2-metastatic breast cancer. This EMA approval is expected to help expand patient access to Trodelvy throughout the EU.
Solid Financials
In the fiscal 2022 fourth quarter ended December 31, GILD’s total revenues increased 2% year-over-year to $7.39 billion. Its non-GAAP operating income grew 79.1% year-over-year to $2.70 billion. Also, Non-GAAP net income attributable to Gilead was $2.11 billion, an increase of 143.2% year-over-year.
Furthermore, the company’s non-GAAP EPS was $1.67, up 142% year-over-year. GILD generated $2.60 billion in operating cash flow during the fourth quarter.
Favorable Analyst Estimates
Analysts expect GILD’s revenue to increase 3.6% year-over-year to $6.49 billion in the second quarter ending June 2023. The company’s EPS for the same period is expected to grow 8.8% year-over-year to $1.72. Moreover, the company has an impressive earnings surprise history since it surpassed the consensus EPS estimates in all four trailing quarters.
Additionally, the consensus revenue and EPS estimate of $27.23 billion and $7.22 for the fiscal year (ending December 2024) indicates an improvement of 7% and 5.8% year-over-year, respectively.
Discounted Valuation
In terms of forward non-GAAP P/E, GILD is currently trading at 11.67x, 40.6% lower than the industry average of 19.63x. The stock’s forward EV/EBITDA of 8.68x is 35.7% lower than the industry average of 13.51x. Also, its forward EV/EBIT of 10.15x compares with the 16.41x industry average.
Moreover, GILD’s forward Price/Sales of 3.72x is 14.1% lower than the industry average of 4.32x. Also, the stock’s forward Price/Cash Flow multiple of 13.80 compares with the industry average of 15.54.
High Profitability
In terms of trailing-12-month gross profit margin, GILD is currently trading at 79.26%, 41.5% higher than the industry average of 56.02%. Likewise, the stock’s trailing-12-month EBITDA margin of 47.93% is 1,245.6% higher than the industry average of 3.56%. Also, its 0.42x trailing-12-month asset turnover ratio is 22.5% higher than the 0.34x industry average.
In addition, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 21.71%, 14.38%, and 7.27% compare to the negative industry averages of 40.08%, 22.27%, and 30.63%, respectively.
POWR Ratings Show Promise
GILD has an overall rating of A, equating to a Strong Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. GILD has an A grade for Value, consistent with its lower valuation relative to its peers. Also, the stock has a grade A for Growth, justified by its robust financials and optimistic analyst estimates.
In addition, GILD has a B grade for Quality, in sync with its higher-than-industry profitability metrics.
The stock is ranked #1 out of 398 stocks in the Biotech industry. Click here to access GILD’s Momentum, Stability, and Sentiment POWR ratings.
Bottom Line
GILD’s revenue and EBITDA have increased at CAGRs of 6.7% and 6.8%, respectively, over the past three months, while its levered free cash flow has grown at a 10.1% CAGR. Furthermore, the company has a positive outlook for 2023 and expects full-year product sales to come between $26 billion and $26.5 billion. Also, non-GAAP EPS is expected to arrive between $6.60 and $7.00.
GILD is well-positioned to advance its transformative medicines portfolio through strategic acquisitions, partnerships, and drug and therapy approvals. The company’s strong financial position allowed it to raise its quarterly dividend. Given its strong financial performance, high profitability, low valuation, attractive dividends, and bright growth prospects, it could be wise to buy and hold this growth stock for the long haul.
How Does Gilead Sciences, Inc. (GILD) Stack up Against Its Peers?
GILD has an overall POWR Rating of A. Check out these other stocks within the Biotech industry with an A (Strong Buy) rating: Vertex Pharmaceuticals Inc. (VRTX), Biogen Inc. (BIIB), and Incyte Corporation (INCY).
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GILD shares were trading at $79.95 per share on Friday morning, up $0.33 (+0.41%). Year-to-date, GILD has declined -6.87%, versus a 4.96% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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