I’ve made some pretty bold calls about Gilead Sciences (NASDAQ:GILD) over the last few weeks. I said that Gilead stock would rise behind a huge acquisition, either Gilead acquired itself, or acquiring Acadia Pharmaceuticals (NASDAQ:ACAD). Both are very likely scenarios, and are at the epicenter of what makes GILD stock so great to own.
However, it is not just M&A that makes Gilead stock so appealing. There are bigger factors at play that often get overlooked. Based on the Gilead stock price, these factors are in fact forgotten.
5 reasons to buy Gilead stock
First, the valuation. Gilead’s HCV franchise may be losing year-over-year revenue, but it still has many years left with $10, even $15 billion in annual sales. In fact, based on its current products, Gilead will continue to earn around $15 billion in net profit for each of the next three years. Hence, GILD stock price supports a multiple of just 7x net profit. Most biotech and big pharma trade at multiples of more than 100% to Gilead.
Second, Gilead has more than Harvoni and Sovaldi. Both HCV drugs have been blessings, but Harvoni’s 29% decline and Sovaldi’s 5% rise in revenue has weighed heavily on GILD stock price. Collectively, the two drugs were responsible for 50% of total product sales. However, the other 50% is growing. Truvada is a blockbuster in its own right with last quarter sales of $942 million. It grew 11%. The fact that Harvoni and Sovaldi sales are starting to decline is fully considered in the valuation of Gilead. Although, GILD stock acts as though there is nothing more.
Third, Gilead has a surprisingly solid pipeline. The knock on GILD has always been it needs to acquire for growth. However, Epclusa is a new hep C oral drug that is the first to treat genotypes 2 and 3. Analysts believe it could do over $10 billion! Genvoya is a new HIV drug that was approved last November, and created over $400 million in the first six months of this year.
Beyond that Gilead has seven phase 3 clinical trials and 18 mid-stage studies in progress. Simtuzumab is Gilead’s NASH drug that should be FDA approved sometime in 2018. It has peak sales potential of $12 billion! Also in Phase 3 development is filgotinib, a rheumatoid arthritis drug that could reach $4 billion in peak sales. That said, everyone keeps waiting for Gilead to acquire its next big drug. However, it appears that Gilead already has several, in development.
Fourth, cash, cash equivalents, and short- and long-term marketable securities totals $24.6 billion. If you remove that cash from Gilead valuation, then GILD stock trades at just over 5x earnings.
Fifth, Gilead is putting cash to work. Gilead stock has a 2.4% dividend yield and the company bought back $9 billion in GILD stock the first half of 2016.
Collectively, this all matters when looking ahead. While Gilead stock may be down now, rest assure that these five factors will eventually pay off, and push GILD stock higher regardless of what it acquires or if it is acquired.
GILD stock: What makes me so confident