Could Anything Go Wrong with Gilead?

Gilead has consistently yielded better results than market.

Harvoni will continue to drive sales after Sovaldi.
Companys valuation figures are quite attractive, and present a buying
opportunity.
Share repurchase program will support stock appreciation trend.
Revenue growth, attractive valuation and strong inventory make Gilead a buy.

Gilead Sciences, Inc. (GILD) has far outpaced the market by yielding abnormal
returns over the past years. In specific, Gilead gave approximately 53% total return,
which is about 44% higher than the S&P 500 index that yielded a return of 9.1%
over the last year. On a five year basis, Gilead Sciences, Inc. recorded a massive
404% total return, equivalent to a 38% compounded annual return. On a
comparative five-year basis, the S&P 500 has yielded 76.36 percent, or an
equivalent of 11.97 percent return compounded annually. Over both horizons,
Gilead has far outgrown the market.
So, what lies ahead of Gilead? Unless a competitor introduces a better drug than
Gileads pioneered medicines, the companys dominance will continue. And such an
occurrence doesnt seem likely in the near term. In this article, Im going to make a
case that
Strong Inventory Pipeline:
Courtesy of excellent research and development programs, Gilead Sciences has
remained in the top companies who produce new and improved drugs. Most
recently, the company got approval for its drug, Harvoni, which can cure patients of
Hepatitis C (HCV) up to 94% to 99% success rate. Prior to this development, the
companys famous drug Sovaldi was used to cure HCV patients. The advancement
in Harvoni is that it can be used without any painful injections. Thus Harvoni is the
first drug to be used solely as a tablet, without using any other medication that has
side effects as well. Furthermore, the time period for curing HCV is reduced to
approximately 8 weeks, though the recommended time to continue using the drug
is 12 weeks.
With these benefits, I am quite sure that the patients will certainly opt for Harvoni
as it provides a much better alternative to any existing HCV drug in the market.
However, with the arrival of Harvoni, the company might have to bear some impact
of cannibalism, as Sovaldis sales will certainly take a downward trend, once the
new drug is in the market. The company is, however, optimistic that the impact
wont deteriorate earnings, since the new drug is expected to increase companys
market share in the HCV drug market. While I agree to the expected increase in
market share, but there will also be sizable impact by cannibalism on Sovaldis
revenues. Net impact will still be in favor of the firm, as the HCV drug market badly

needed and painless treatment for the disease. Thus, the net impact on revenues
will be positive.
Valuation:
Given below is the summary of valuation provided by 24 brokers. At the moment,
the median price estimate is $120 which provides approximately 8% upside
potential. The high target of $165 would mean an upside of almost 49%. The upside
for high target is achievable in the next twelve months, given the strong sales
expected from companys drugs. And the company does have strong fundamentals;
therefore, I wouldnt be surprised to see the company meeting this target.

Therefore, based on sales growth and superior result-oriented drugs, I believe that
the stock is going to outperform the market.
Likewise, PE and PEG ratios present a very promising picture in comparson to both
industry and the S&P 500 index.

Source: Yahoo Finance

P/E ratio for the company is 13.31 which is a bit higher than the industrys 6.69. But
the PEG ratio for the company is 0.58 which is quite lower than the industrys PEG of
22.68. These numbers represent the massive growth potential the company
possesses in its future endeavors. On the other hand, the company has lower P/E
and PEG ratios compared to the S&P 500 index, which is certainly a positive facet
for the company.
These numbers present a very attractive valuation for Gilead. And based on these
figures, there is every reason to invest in Gilead.
Dividend and Share Repurchase Program:
The company has not started paying dividends yet, but the company is carrying out
massive share buyback programs. On 7th May 2014, Gilead Sciences announced that
the company has authorized a share repurchase of $5 billion. This approval is in

addition to the earlier $5 billion share repurchase program announced earlier in

January 2011. The program is expected to continue for three years i.e. till the end of
2017. Thus, shareholders should find comfort in knowing that the share repurchase
program will act as a buffer, and provide support to the stock price in case the stock
plunges; though the chances of this happening are almost negligible in the near
term outlook.
Final Remarks:
In short, the company has promising growth prospects in both short and long run.
While the stock might look like a bit overpriced with the current price at $110, the
upside potential is huge. Revenue projections and valuation are quite attractive.
And, the companys operations are strong enough to achieve the $150 mark in the
next 12 months. Therefore, Ill recommend buying this stock for both short term and
long term investors.