Gilead Sciences (GILD) finally found some minor relief this week after its fourth-quarter earnings report showed lots of promising numbers. Shares of GILD stock were sitting at a 52-week low at the beginning of February and, even after a 5% jump on Wednesday, are 15% lower in 2016 alone. Through Feb. 2, GILD had fallen almost 20% in the past 12 months.
The most recent trouble for Gilead Sciences was the one-two punch of the company’s CEO stepping down after two decades, right on the heels of the approval of Merck’s hepatitis C drug Zepatier.
The drug was approved in late January, and while the approval itself was expected, investors panicked at its lower-than-anticipated price. For 12 weeks of Merck’s drug treatment, the price is slated to be $54,600 — 42% lower than Gilead’s hep C offering.
Gileads’s expensive drugs — which currently boast more than 90% of the market share for hep C treatments — are also the company’s highest-grossing products. But their pricing concerns don’t end with Merck’s offering. In fact, they started long before. Massachusetts recently alleged unfair commercial conduct because of the sky-high pricing, while Pennsylvania opened a similar case last year (although it went nowhere).
These concerns — especially since they’re so politicized and public — have been dramatically reflected in the Gilead Sciences stock price, as already mentioned. The fact that we’re in a volatile trading environment likely hasn’t helped investor sentiment, either.
Gilead Earnings Should Put Investors at Ease
Gilead’s earnings reminded investors of the value hidden behind the headlines. Even after the recent jump, GILD stock is trading for just 8 times trailing and 7 times forward earnings. And while the two hep C drugs are decent earnings drivers, a glance at the company’s report reminds us that Gilead has far more to offer than just those two under-scrutiny offerings.
Add it up, and there was plenty to like in the Q4 report. For example:
- Earnings grew by 36% year-over-year and beat the consensus by 11%.
- Revenue grew by 16% year-over-year and was also better than analysts expected.
- The company catered to investors by announcing a huge $12 billion share buyback and a 10% bump in the quarterly dividend.
The new 43-cent-per-share payout brings the company’s dividend to $1.72 per share, good for a sweet yield just under 2%.
This is not to say that the worst is over for Gilead Sciences. Investor are skittish right now in general, and the controversy surrounding GILD is front and center thanks to media and political interest in the matters.
Yet between the stock’s multiple, the coming buyback, the sweet dividend and the fact that earnings growth is expected to continue, Gilead Sciences could be a brewing value. There’s a lot of uncertainty, but that’s part of the biotech game. Unfortunately, so are allegations and legal battles… but plenty of big dogs in the space have made it through such downturns.
Don’t be surprised if GILD does the same. This Q4 bump might be just the beginning.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader,Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.
