27 Aug 2015

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Gilead Sciences (GILD)

27 Aug 2015

This week we take a look at Gilead Sciences (GILD), arguably one of the strongest stocks in the biotech industry today from an EVA perspective. Gilead is specialized in the development and commercialization of human therapeutics for the treatment of life threatening diseases, and currently controls the market for HCV (Hepatitis-C).  According to Street Insider (link), Gilead has consistently produced earnings above analyst expectations, and following the stock market crash on Monday, has already completely recovered from two-day losses.  Download

With regards to economic performance, Gilead Sciences has reached its highest point in the last five years, with a performance spread (ROC-COC) of 41.5%.

From a valuation perspective, since September 2014 Gilead Sciences’ intrinsic value lies above the current market price. The intrinsic value has increased from $133.95 to $359.34 in the last two quarters, a 168% increase, leaving a P/IV of 0.30, which is fairly attractive. Between June 2013 and June 2014, the NOPAT almost tripled and sales jumped from 10.3B to 17.4B due to the FDA’s approval of drugs Harvoni and Sovaldi, intended to treat Hepatitis-C . The FGV, at -26.3%, also shows an interesting discount as the current operating value (COV) of the company continues to increase steadily.

Gilead Science’s EVA has been positive for the last five years and has been accelerating at a very rapid pace since December 2013. Over the last 12 months the company has augmented its invested capital by 51.8%, equivalent to an increase from 23.4B to 35.5B. During the same period of time the NOPAT (Net Operating Profit After Tax) has increased by 91.4%. It can therefore be said that the company’s investments have improved its economic profitability.

Concluding with the company’s accounting performance, Gilead has consistently generated high levels of Free Cash Flow and during the last twelve months, this Free Cash Flow has increased by a staggering 150%, indicating the company’s strength in the marketplace. In terms of dividends, the first one ever paid was in Q2 of 2015 and the expected yield is of 1.59%.

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