Gilead Sciences, Inc. (
NasdaqGS: GILD), a bio- pharmaceutical company, engages in the discovery, development, and commercialization of therapeutics for the treatment of life-threatening infectious diseases. Its products treat such conditions as HIV, chronic Hepatitis B, and other various infections.
The company has research collaborations with Abbott Laboratories, Inc.; Novartis Institutes for BioMedical Research, Inc.; Novartis Vaccines and Diagnostics, Inc.; and Genelabs Technologies, Inc. among many others.
The stock has been underperforming over the past several months and is barely up from early March while the broader market has soared. I believe the company has a lot going for it and its recent lethargic performance is a good opportunity to accumulate shares at a relatively low level.
In early May, the stock took a hit on news that its experimental heart drug darusentan caused some side effects, even though it was significantly able to lower blood pressure. Perhaps this was a slight setback, but their robust product line more than makes up for it.
Gilead's first-quarter results were strong and represented solid growth over the past year. Revenues grew 27% and earnings rose 25%. I love when revenue growth keeps up with earnings growth as only cost cutting can't last forever. The company's antiviral product sales are firing on all cylinders as they showed 28% growth in the quarter. HIV treatments Atripla and Truvada were the two biggest products.
Another big development during the quarter was the closing of its acquisition of CV Therapeutics. CEO John Martin said, "This acquisition immediately delivers two marketed products; Ranexa and Lexiscan to our franchise, as well as a pipeline that includes several interesting candidates in clinical development. Ranexa’s revised labeling achieved last November provides an important opportunity to accelerate the adoption of this product, and we believe the knowledge of the Ranexa cardiology sales force paired with our commercial operations resources, discipline, and expertise will allow us to have a significant impact on expanding the usage of Ranexa for patient in need."
Gilead has a strong history of exceeding earnings estimates. Over the past three quarters, the company has posted an average positive surprise of 6%. This year's estimates have increased a nickel to $2.53 per share over the past 60 days. Analysts are expecting earnings to grow a further 14.4% to $2.89 per share next year. The stock is trading at very reasonable valuations of 15.6x next year's estimates, which is below the expected long-term growth rate of 17%. As I said earlier, the stock hasn't kept up with the broader market's surge and could be due for a nice "catch-up" rally.
If the company continues to execute well and the CV Therapeutics integration goes smoothly, I can see this stock pushing $60 per share over the next 12-18 months. This is an extremely profitable company as it has a profit margin of 37.7% and an operating margin of 50.5%. Other metrics I love are a strong return on equity of 51.9%. This is a testament to how effective the company's management is. It has a current ratio of 3.65 which means it can cover its short-term liabilities with ease. Pick up some shares at these levels. You will be happy you did in a year.
