The BioPharma sector can present profitable opportunities for those who do their research. When it comes to investing in pharmaceutical stocks, investors should look for companies with proven R&D, solid pipeline of profitable treatments and companies with long histories. This sector tends to be very volatile when it comes to the small cap. Stocks but the large established players offer predictable earnings and usually come with high MOATs.
This company is a research-based biopharmaceutical company that discovers, develops and commercializes drugs. Their stock is near a 5 year low, their Price to Book is close to a 10 year low making this company very undervalued. A rich pipeline with 30 product candidates with six currently in Phase III are projected to spur revenue growth for the foreseeable future.
Gilead Sciences Inc
Market Cap: $85B
P/E Ratio: 14
Gilead Sciences develops and markets therapies to treat life-threatening infectious diseases, with the core of its portfolio focused on HIV, Hepatitis, Liver disease and Cancer. GILD brought in $22.5B in sales last year with a strong operating margin of 37%.
Past Success in Drug Development
The company revolutionized Hepatitis C treatments essentially removing the risk of this disease being life threatening. These innovative drugs brought in billions and GILD saw their revenue and share price surge five years ago. At their peak the company was selling $20 billion of these drugs per year but stiff competition has brought that down to $3.2 billion per year. As a result the company lost close to $85 billion in market capitalization over the last four years.
Intrinsic Value – Discounted Cash Flow
Discounted Cash flow analysis is a method of valuing a company using the concepts of the time value of money. All future cash flows are estimated and discounted by using cost of capital to give their present values. According to this calculation the company’s Fair Value is $128.96 meaning that the market is undervaluing this company by 48%.
The decline in revenue from Gilead’s Hepatitis drugs has ended and sales appear to be recovering. The most recent results were positive and this was the first quarter in three years where GILD reported year-over-year revenue expansion. Their revenue grew 3.7% to about $5.3 billion and their EPS grew by 32.10%.
Future Growth Prospects
Gilead Sciences over it’s 32 year history has proven to be able to consistently launch new and innovative products and protect their business with patents. The company has broadened its product base to reduce risks of over reliance on a handful of drugs and this should help improve the consistency and growth of the company.
The company’s new products will contribute to increasing revenues and cash flow. The company’s revenue across 3 key drugs increased 43% since Q1 2018. Their fastest growing drug Biktarvy saw sales surge from $35M in Q1 2019 to $793M last quarter. This growth is impressive and should continue to rise as the drug launches in countries across the world including UK and Italy in 2019. Yescarta is the company’s fastest growing cancer treatment that saw sales more than double year over year. Analyst project sales of this drug to go from $93M to over $2B in the next 5 years.
The company has also brought on a new leadership this year. The new CEO that has made it his mandate to grow by acquisition as well as put a bigger focus on Cancer treatments.
Analyst recommend this stock to be “overweight” meaning it is a better value for money compared to the broader market. The average analyst price target for 2019 is $81 representing 20% upside from current levels.
Gilead pays a healthy 4% dividend and offers a margin of safety of 48%. The stock offers significant upside based on their future growth projections. All signs point to this company’s troubles being behind them. The recovery in the last quarter is a very positive catalyst for GILD and their growing drug pipeline have the potential to make this stock outperform.