Is Gilead Sciences Really Undervalued?

I am not a biotech expert, and the only stock in this space that I have recommended buying in the past is Gilead Sciences (GILD). I really like the company’s business, and the presence of mid-term growth drivers along with long-term growth drivers convinced me to initiate a buy rating on the stock. Although I was late to Gilead’s rally, the stock has appreciated close to 40% since my first buy rating. It’s been over a year since I called Gilead a buy due to its breakthrough medicine Sovaldi, the company is still witnessing strong sales.
The company reported another stunning quarter, beating the analysts’ estimates on revenue and earnings.

Gilead’s earnings surged 70% as it posted net income of $4.6 billion, or $3.06 per share, compared with $2.7 billion, or $1.67 per share a year earlier. The company’s top-line rose 37 percent to $8.2 billion, including $4.8 billion for hepatitis C drugs Sovaldi and Harvoni.

Gilead Sciences also revised its outlook for full-year product sales higher to between $30 billion and $31 billion, from a previous estimate of $29 billion to $30 billion. More importantly, the sales of company’s hepatitis C drugs were in-line with the Street estimates and are expected to stay strong.

While the hepatitis C market has contributed to Gilead’s explosive growth, the company’s HIV drugs portfolio is equally important and is a great long-term revenue driver. Two of the company’s primary HIV drugs gained delivered strong growth. Stribild witnessed the fastest growth, jumping to $511 million in sales compared to $327 million in the year-ago quarter. Whereas Truvada was Gilead’s biggest HIV moneymaker yet again as the drug recorded third-quarter sales of $903 million.

Gilead Sciences also expects approval of new HIV drugs in the coming months. Over the conference call, the company’s management stated that three new HIV combination drugs are awaiting approval by U.S. and European Union regulators, one could be approved this week, and all three could be approved within the next six months.

In addition, during the quarter, Japan the sales of Harvoni. Japan possesses a big potential for Gilead’s hepatitis C treatment regime as several hundreds of thousands of people in the country suffer from the disease. Given the Gilead’s hepatitis C treatment is still the best one available in the market, the biotech giant’s hepatitis C regime should continue to gain traction in the foreseeable future as well.


Despite Gilead’s stellar quarter, shares of the company ended the day with a 2%+ decline. The company’s undervaluation is appalling as it is only trading at 10x trailing earnings. Despite witnessing massive growth, the company is trading at a lower valuation than its peers. Gilead Sciences is one of the best bargains in the market, and I think investors should buy the stock at the present valuation.
Published on Nov 3, 2015
By Ayush Singh

Copyrighted 2020. Content published with author's permission.

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