Anyone with two eyes and basic understanding of fundamental analysis should be able to see that Gilead Sciences, Inc (NASDAQ:GILD) is undervalued. Furthermore, any reasonable investor should conclude that GILD stock won’t stay in the mid-70s forever; Gilead stock will go higher.
The question is not if, but when will GILD stock will go higher? Will it be in 2017, or later?
This is a company that has lost 31% of its market capitalization over the last year. GILD stock has fallen 25% in the same span, outperforming its market capitalization losses thanks to large buybacks.
While Gilead Sciences’ HCV franchise has peaked, this is still a company that’s valued at only 7x next year’s expected EPS. Never-mind that revenue is falling at a single-digit clip — focus on Gilead stock’s valuation, its buybacks, and a dividend yield of 2.5%. Furthermore, consider the bad investment sentiment, and the many catalysts that could instantly catapult a cheap GILD stock.
Specifically, Gilead Sciences has $32 billion in cash. It is one of the few companies that can afford to raise its dividend, double the pace of buybacks, and still complete a game-changing acquisition with cash to spare.
Furthermore, Gilead Sciences pipeline is far more developed and ready to become a short-term catalyst that most GILD stock owners realize, explained here. When you start to look at all the moving parts, it is clear that Gilead stock is a terrific investment.
2017 remains a question for GILD stock
Despite being cheap with long-term catalysts, GILD investors must contend with sour sentiment. What Gilead needs most is a big acquisition, something for investors to get excited about. Receptos would have been the perfect acquisition, but Celgene already snatched it up. In looking throughout the biotech space, promising companies are too expensive, and others like Juno and Kite Pharma come with unknown safety questions that will be answered in ongoing trials.
The one company I’d like to see Gilead acquire is ACADIA Pharmaceuticals (NASDAQ:ACAD). Most would agree that where Gilead thrives is in marketing, and sales. Ironically, that’s where ACADIA Pharmaceuticals has trouble. With the right strategy, we believe that ACADIA’s drug Nuplazid could create several billion dollars in annual sales. However, ACADIA Pharmaceuticals needs help, and Gilead would be perfect to help.
With a $3 billion market capitalization, ACADIA Pharmaceuticals is the right fit for Gilead Sciences, an acquisition that GILD stock owners can get excited about. Still, the big question remains will Gilead make a move, for ACADIA or any other company? Regardless, Gilead stock is dirt cheap and should go much higher, but a big time acquisition would certainly accelerate the inevitable.