With a daily gain of 4.63% and an Earnings Per Share (EPS) of 4.43, Gilead Sciences Inc (GILD, Financial) has been attracting attention in the investment community. This article aims to answer the pressing question: is Gilead Sciences (GILD) fairly valued? Let's delve into a comprehensive valuation analysis to reach a verdict.
Company Overview
Gilead Sciences, a company with a rich portfolio of therapies for life-threatening infectious diseases, has a history of acquisitions that have expanded its focus to pulmonary and cardiovascular diseases and cancer. The company's stock currently trades at $79.03 per share, with a market capitalization of $98.6 billion. Comparing this to the GF Value of $71.89, it appears that Gilead Sciences is fairly valued.
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. It provides a benchmark for the stock's fair trading value, with the stock price typically fluctuating around this line. If the stock price significantly exceeds the GF Value Line, it may be overvalued, indicating potentially poor future returns. Conversely, a stock price significantly below the GF Value Line suggests undervaluation and potentially high future returns.
For Gilead Sciences, the current stock price aligns closely with the GF Value Line, indicating that the stock is fairly valued. This suggests that the long-term return of its stock is likely to be close to the rate of its business growth.
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Assessing Financial Strength
Before investing, it's crucial to evaluate a company's financial strength. Companies with poor financial strength pose a higher risk of permanent loss. Key indicators of financial strength include the cash-to-debt ratio and interest coverage. For Gilead Sciences, the cash-to-debt ratio is 0.23, lower than 75.42% of companies in the Drug Manufacturers industry. This gives Gilead Sciences a financial strength rating of 5 out of 10, indicating fair financial standing.
Profitability and Growth
Investing in profitable companies typically carries less risk. Gilead Sciences has been profitable for 10 out of the past 10 years, with an operating margin of 47.9%, better than 98.46% of companies in the Drug Manufacturers industry. This grants Gilead Sciences a strong profitability rank.
However, growth is a vital factor in company valuation. Gilead Sciences' 3-year average annual revenue growth is 7.1%, ranking better than 54.32% of companies in its industry. However, its 3-year average EBITDA growth rate is 5.8%, ranking worse than 57.56% of its industry peers.
ROIC vs. WACC
Comparing a company's Return on Invested Capital (ROIC) and Weighted Average Cost of Capital (WACC) can also shed light on its profitability. Over the past 12 months, Gilead Sciences' ROIC was 18.92, significantly higher than its WACC of 5.52.
Conclusion
In conclusion, Gilead Sciences appears to be fairly valued. The company has fair financial strength, strong profitability, and growth that ranks better than over half of the companies in the Drug Manufacturers industry. For more information about Gilead Sciences, you can check out its 30-Year Financials here.
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