Will Gilead Continue to Deliver Steady Returns?

With shares of Gilead Sciences Inc. (NASDAQ:GILD) trading at around $39.59, is GILD an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

Q4 EPS came in at $0.47, which beat expectations by $0.02. Excluding restructuring and other one-time costs, EPS was $0.50. Q4 profit rose 15 percent year-over-year, and Q4 revenue rose 18 percent year-over-year. Revenue came in at $2.59 billion, which beat expectations. Viread sales increased 19 percent to $227 million. Stribild sales were $40 million. There is no significant increase or decrease in sales for Stribild, as it’s a relatively new HIV drug. FY2012 EPS came in at $1.64, which was lower than in 2011. However, FY2012 revenue was $9.7 billion, which was a 16 percent increase compared to 2011.

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Gilead already dominates the HIV drug space. Now, Gilead is looking to expand into the hepatitis C space. If this expansion is successful, then Gilead will improve an already strong operation. In November, the company announced positive results for a three-drug treatment for hepatitis C.

Let’s look at some important numbers prior to forming an opinion on this stock…

E = Equity to Debt Ratio Is Normal

The debt-to-equity ratio for Gilead is normal, but the balance sheet is negative. The balance sheet is one of the few weaknesses for this company.    

Debt-To-Equity

Cash

Long-Term Debt

GILD

1.00

$1.70 Billion

$8.77 Billion

CELG

0.54

$3.83 Billion

$3.09 Billion

AMGN

1.39

$24.06 Billion

$26.53 Billion

 

T = Technicals on the Stock Chart Are Strong    

Gilead has outperformed Celgene Corporation (NASDAQ:CELG) and Amgen Inc. (NASDAQ:AMGN) over the past year. However, Celgene has shown the best performance over the past three years, and Amgen is the only company of the three that offers yield, which is currently 2.20 percent.

1 Month

Year-To-Date

1 Year

3 Year

GILD

5.12%

8.37%

45.53%

71.29%

CELG

20.10%

25.64%

34.67%

76.59%

AMGN

-2.65%

0.49%

27.44%

55.06%

 

At $39.59, Gilead is currently trading above all its averages.

50-Day SMA

37.99

100-Day SMA

35.81

200-Day SMA

31.05

 

E = Earnings Had Been Steady      

Gilead had been increasing earnings since 2007, but that came to a halt in 2012. Revenue has increased consistently on an annual basis. This is uncommon as well as impressive.

2007

2008

2009

2010

2011

Revenue ($)in billions

4.23

5.34

7.01

7.95

8.39

Diluted EPS ($)

0.82

1.03

1.41

1.66

1.78

 

We already know what happened this quarter. Now let’s take a look at previous quarters.

9/2011

12/2011

3/2012

6/2012

9/2012

Revenue ($)in billions

2.12

2.20

2.28

2.41

2.43

Diluted EPS ($)

0.48

0.44

0.29

0.46

0.43

 

T = Trends Support the Industry

As long as Gilead continues selling drugs that people need to help them survive and live better lives, trends aren’t a factor. Gilead is as close to recession-proof as you’re going to find. Therefore, in this case and cases like it, trends always support the industry.

Conclusion

Gilead has superb margins, strong cash flow, consistent top-line growth on an annual basis, and the stock held up extremely well during the financial crisis of 2008/2009. This is important in case we see a similar environment in the future. There have been many large insider sales over the past six months, but that shouldn’t scare anyone away. Insider purchases are more telling than insider sales. People sell for a variety of reasons. They only buy for one reason.

Gilead has now been a winner for decades. That trend should continue. Gilead is a long-term OUTPERFORM.

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