With a daily gain of 1.82%, a three-month gain of 0.44%, and an Earnings Per Share (EPS) (EPS) of 4.35, Gilead Sciences Inc (GILD, Financial) is a stock that has caught the attention of many investors. But the question remains: is the stock fairly valued? This article delves into a detailed valuation analysis of Gilead Sciences, providing insights into its financial strength, profitability, and growth. Read on for a comprehensive understanding of the company's intrinsic value.
Company Introduction
Gilead Sciences develops and markets therapies for life-threatening infectious diseases, focusing primarily on HIV and hepatitis B and C. The company has expanded its portfolio to include pulmonary, cardiovascular diseases, and cancer through acquisitions such as Corus Pharma, Myogen, CV Therapeutics, Arresto Biosciences, and Calistoga. The acquisition of Pharmasset brought rights to hepatitis C drug Sovaldi, which is also part of combination drug Harvoni. Further, the acquisitions of Kite, Forty Seven, and Immunomedics have boosted Gilead's exposure to cell therapy and noncell therapy in oncology.
As of September 26, 2023, Gilead Sciences (GILD, Financial) is trading at $76.19, with a market cap of $94.90 billion, and sales of $27.40 billion. The company's GF Value, a measure of its intrinsic value, is estimated to be $72.7, indicating that the stock is fairly valued.
Understanding GF Value
The GF Value represents the current intrinsic value of a stock derived from GuruFocus' exclusive method. The GF Value Line on our summary page provides an overview of the fair value that the stock should be traded at. It is calculated based on three factors: historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) that the stock has traded at, GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of the business performance.
According to our GF Value, Gilead Sciences' stock appears to be fairly valued. As the stock is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
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Financial Strength
Companies with poor financial strength pose a high risk of permanent capital loss to investors. To avoid this, it's essential to review a company's financial strength before deciding to purchase shares. Gilead Sciences has a cash-to-debt ratio of 0.26, which ranks worse than 71.74% of 1058 companies in the Drug Manufacturers industry. The overall financial strength of Gilead Sciences is 5 out of 10, indicating that it is fair.
Profitability and Growth
Investing in profitable companies is less risky, especially those with consistent profitability over the long term. Gilead Sciences has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $27.40 billion and Earnings Per Share (EPS) of $4.35. Its operating margin is 45.64%, which ranks better than 98.48% of 1051 companies in the Drug Manufacturers industry. Overall, the profitability of Gilead Sciences is ranked 9 out of 10, indicating strong profitability.
One of the most important factors in the valuation of a company is growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Gilead Sciences is 7.1%, which ranks better than 54.22% of 924 companies in the Drug Manufacturers industry. The 3-year average EBITDA growth is 5.8%, which ranks worse than 57.61% of 887 companies in the Drug Manufacturers industry.
ROIC vs WACC
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Gilead Sciences's ROIC was 17.51, while its WACC came in at 6.2.
Conclusion
In conclusion, the stock of Gilead Sciences gives every indication of being fairly valued. The company's financial condition is fair, and its profitability is strong. Its growth ranks worse than 57.61% of 887 companies in the Drug Manufacturers industry. To learn more about Gilead Sciences stock, you can check out its 30-Year Financials here.
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