Gilead Sciences, Inc. Stock Looks Good Regardless of Quarterly Earnings Report

However Gilead Sciences, Inc. (NASDAQ:GILD) quarterly earnings report ends up after the market close (October 26), the stock’s valuation still looks very compelling. Ideally, investors would want the company reporting stronger Hepatitis C drug sales, and so, higher cash flow in the quarter.

GILD Stock Looks Good Regardless of Quarterly Earnings Report
Source: Gilead Sciences

In its second quarter report (back in July), Gilead reported improving non-HCV revenue, especially in the U.S. Total revenue topped $7.1 billion, down from $7.8 billion last year. Though product sales fell 8% year-over-year, U.S. product sales rose 2 percent. Sales of HCV products fell. Similarly, in Europe, competitive pressures hurt HCV sales. The company improved its cost structure by cutting expenses (excluding R&D) by 22%, to $812 million.

 

Gilead ended the quarter with $36.6 billion in cash and investments. Cash flow will fall in the second half of this year, due to both seasonal payments and payments for government rebates. In the next Q4 reporting period, expect cash levels to fall to around $24.7 billion, excluding cash generated in that time. Gilead is acquiring Kite Pharma for $11.9 billion, a deal set to close in the fourth quarter. Gilead said the purchase will give it opportunities to diversify its revenue. In the short term, Kite will be neutral to earnings. It will add positively to profits in the third year of ownership.

For the full year 2017, GILD forecasts net product sales of between $24 billion to $25.5 billion. Non-HCV product sales are expected to be between $15.5 billion to $16 billion. HCV net-product sales are guided between $8.5 billion to $9.5 billion. The company forecasts R&D expenses of between $3.2 billion to $3.4 billion.

HCV Developments

The Committee for Medicinal Products for Human Use (CHMP) issued a positive opinion on Gilead’s application for marketing Vosevi last June. In July, the FDA approved the drug for treating HCV genotypes 1 – 6. The success of HCV is a mixed blessing for GILD. Patients cured of HCV no longer need treatment, so the company must find new patients infected with hepatitis. Once introduced into the system, the market potential grows. Then, the medical system may treat these patients.

Competition for HCV Drug

Last August, the FDA approved AbbVie Inc’s (NYSE:ABBV) Mavyret (glecaprevir and pibrentasvir), which treats adult patients with genotypes 1 – 6 chronic hepatitis C virus. Ahead of the approval, Gilead’s management said it would review AbbVie’s label on the drug, check the pricing, and watch how it markets the drug. Gilead has Vosevi and Epclusa, which may lessen the negative impact of AbbVie’s competitive pressures on Gilead’s HCV drug.

The impact of AbbVie’s competition will not show up in the near term. Last month, GILD stock topped $86.27 and has fallen steadily ever since. The drop is just as likely due to worries over the competition as the general decline in the iShares Nasdaq Biotechnology ETF (NASDAQ:IBB).

Gilead’s Valuation

Based on 10 financial models built by finbox.io users, the GILD stock price has an average fair value of around $94, implying upside of 17.6 percent. If Kite Pharma adds positively to earnings within three years, then investors should use a 10Y DCF EBITDA Exit model. Gilead need only stabilize revenues by 2020 while reporting flat or some growth from years 2021 through 2026. With a discount rate between 9 to 10 percent, the GILD stock price today is worth between $101 – $115 a share.

Takeaway for GILD Stock

Gilead’s healthy balance sheet will continue, but its cash levels will shrink. It is about time. The drug company needs another blockbuster drug within a few years to offset the rising competition of HCV drugs. Kite Pharma is a big acquisition for Gilead, but growth investors should expect more buyouts on the way to reaccelerate the company’s growth.


Article printed from InvestorPlace Media, https://investorplace.com/2017/10/gilead-sciences-inc-gild-stock-looks-good/.

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