Gilead Sciences, Inc. (GILD) operates as a biopharmaceutical company that discovers, develops, and commercializes medicines for unmet medical needs in the United States, Europe, and internationally.

The company’s third-quarter earnings and revenues surpassed Wall Street estimates by 32.9% and 14.8%, respectively, on strong HIV and oncology businesses.

Total product sales, excluding Veklury, grew 11% year-over-year to $6.10 billion. HIV product sales increased 7% from the prior-year quarter to $4.5 billion, primarily driven by solid demand and a favorable channel mix associated with government utilization leading to a higher average realized price. Also, GILD’s oncology sales increased 79% year-over-year to $578 million in the third quarter of 2022.

“In HIV, treatment and prevention markets continue to grow with further share gains for Biktarvy in treatment, and we received our first approval for our long-acting HIV agent, lenacapavir, in Europe. In oncology, there is increasing demand for cell therapies and Trodelvy. Yescarta and Tecartus received two approvals in Europe, and Trodelvy was granted FDA Priority Review for HR+/HER2- metastatic breast cancer,” said GILD’s Chairman and CEO, Daniel O’Day.

Moreover, the company raised its annual guidance. For the full year, GILD now expects total product sales between $25.90 billion and $26.20 billion, compared to $24.50 billion and $25 billion guided previously. Its total product sales, excluding Veklury, are expected to come between $22.50 billion and $22.80 billion, up from the prior guidance of $22-$22.50 billion.

Furthermore, the company expects non-GAAP EPS between $6.95 and $7.15, compared to the previously guided EPS of $6.35 and $6.75.

Chris Schott, an analyst from JPMorgan, wrote that shares of GILD are “clearly undervalued at current levels.” The analyst upgraded GILD to Overweight from Neutral and increased his 12-month price target to $80 from $72.

Shares of GILD have gained 10.7% year-to-date and 20.9% over the past year to close the last trading session at $80.34.

Here is what could influence GILD’s performance in the upcoming months:

Recent Positive Developments

On November 2, GILD announced that the U.S. Food and Drug Administration (FDA) approved the supplemental new drug application (sNDA) for Vemlidy® (tenofovir alafenamide) as a treatment of chronic hepatitis B virus (HBV) infection in pediatric patients 12 years of age and older with compensated liver disease.

Last month, GILD and MacroGenics, Inc. (MGNX) announced an exclusive option and collaboration agreement to develop MGD024, an investigational, bispecific antibody that binds CD123 and CD3 using MacroGenics’ DART® platform, and two additional bispecific research programs.

The collaboration agreement also grants Gilead the option to license MGD024, a potential treatment for certain blood cancers, including acute myeloid leukemia (AML) and myelodysplastic syndromes (MDS).

Favorable Analyst Estimates

Analysts expect GILD’s EPS for the fiscal 2022 fourth quarter (ending December 2022) to come in at $1.49, indicating an increase of 115.2% year-over-year. The consensus revenue estimate of $1.17 for the fiscal 2023 second quarter (ending June 2023) indicates an 8.3% year-over-year increase.

Moreover, the company has surpassed the consensus revenue estimates in each of the trailing four quarters, and the consensus EPS estimate in three of the trailing four quarters.

High Profitability

GILD’s trailing-12-month gross profit margin of 79.22% is 45.9% higher than the 54.31% industry average. And the stock’s trailing-12-month EBITDA margin of 47.08% is 1,434.5% higher than the industry average of 3.07%. Likewise, its trailing-12-month net income margin of 12.29% compares with the industry average of negative 3.68%.

In addition, GILD’s trailing-12-month ROCE, ROTC, and ROTA of 15.67%, 13.97%, and 5.33% compare to the industry averages of negative 39.14%, 21.75%, and 30.24%, respectively. Its trailing-12-month asset turnover ratio of 0.42% is 20.1% higher than the industry average of 0.35%.

Attractive Dividend

GILD is highly committed to returning value to shareholders via high-yield dividends. It pays a $2.92 per share dividend annually, which translates to a 3.63% yield on the current share price. Its four-year dividend yield is 3.99%. 

The company’s dividend payouts have grown at a CAGR of 5.6% over the past three years and 7.4% over the past five years. Moreover, the company has raised its dividend for six consecutive years.

Discounted Valuation

In terms of forward non-GAAP P/E, GILD’s 11.30x is 40.1% lower than the industry average of 18.86x. The stock’s 8.52x forward EV/EBITDA is 34.7% lower than the industry average of 13.04x. Moreover, its forward EV/EBIT multiple of 9.82 compares with the industry average of 16.31.

In addition, GILD’s forward Price/Sales of 3.82x is 9.8% lower than the 4.24x industry average. Its 10.12x forward Price/Cash Flow is 39.7% lower than the industry average of 16.78x.

POWR Ratings Show Promise

GILD has an overall A rating, which equates to a Strong Buy in our POWR Ratings system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight distinct categories. GILD has a grade of A for Sentiment, consistent with its solid earnings growth estimates. In addition, it has a B grade for Quality, in sync with its higher-than-industry profitability metrics.

GILD is ranked #3 of 386 stocks in the Biotech industry.

Beyond what I have stated above, we have also given GILD grades for Growth, Quality, Momentum, and Stability. Get access to all GILD ratings here.

Bottom Line

GILD’s revenue and net income have increased at CAGRs of 6.7% and 7.4% over the past three years, respectively. Moreover, the company’s near-term prospects look bright, given the sustained demand in its human immunodeficiency viruses (HIV) and oncology franchises. Furthermore, GILD’s financial strength allows the company to pay attractive dividends to its shareholders.

Therefore, following the biopharmaceutical company’s better-than-expected third-quarter earnings, we think it could be wise to invest in this quality stock.

How Does Gilead Sciences, Inc. (GILD) Stack Up Against Its Peers?

GILD has an overall POWR Rating of A. One could also check out these other stocks within the Biotech industry with an A (Strong Buy) rating: Biogen Inc. (BIIB), Vertex Pharmaceuticals Inc. (VRTX), and United Therapeutics Corporation (UTHR).

GILD shares were trading at $80.16 per share on Monday morning, down $0.18 (-0.22%). Year-to-date, GILD has gained 14.49%, versus a -19.59% 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. More...

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