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Gilead Sciences, Inc. (GILD)

October 14, 2024

Compared to: Moderna, Inc. (MRNA) | Amgen, Inc. (AMGN) | Health Care Select Sector SPDR Fund (XLV)

Our reasoning

Gilead Sciences appears undervalued based on its current valuation multiples being below industry averages and historical levels, despite strong financial performance and growth prospects. The company's robust pipeline, particularly in HIV and oncology, coupled with its operational efficiency improvements, suggest potential for future value creation that may not be fully reflected in the current stock price.

Key takeaways
  • Gilead Sciences, Inc. (GILD) is a leading biopharmaceutical company with a strong product portfolio and a robust pipeline, but faces significant competition and pricing pressures in its core markets.
  • The company's financial performance has been mixed, with revenue declines in 2023 due to lower Veklury and Liver Disease sales, offset by growth in HIV and Oncology.
  • Gilead has a strong balance sheet but has used significant cash for acquisitions, which could limit financial flexibility going forward.
  • Gilead's key strengths include its strong brand recognition, its diverse product portfolio, and its robust pipeline.
  • Gilead's key weaknesses include its reliance on sales of HIV and COVID-19 products, its high level of short-term debt, and its declining free cash flow.
  • Gilead's key opportunities include the expansion of its product portfolio, the development of new products, and the growth of the HIV prevention market.
  • Gilead's key threats include competition, pricing pressures, regulatory risks, and the potential for clinical trial failures.
  • Gilead's valuation metrics are currently below the industry average, which could indicate that the company is undervalued.
  • Gilead's stock price has been volatile in recent years, but the company's stock price has outperformed the Health Care Select Sector SPDR Fund (XLV) over longer periods like 2 years and 3 years.
  • Gilead's future outlook is positive, with the company expected to continue to grow its revenue and profitability in the coming quarters.
Undervalued
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Evaluation summary

  1. Company Overview:

    • Gilead Sciences, Inc. (GILD) is a leading biopharmaceutical company focused on developing and commercializing innovative medicines for life-threatening diseases, primarily in the areas of HIV, viral hepatitis, COVID-19, and oncology. The company operates in over 35 countries worldwide and distributes its products through its own commercial teams, third-party distributors, and corporate partners. Gilead's key products include HIV treatments (Biktarvy, Genvoya, Descovy), viral hepatitis treatments (Epclusa, Harvoni, Vemlidy), COVID-19 treatment Veklury, oncology therapies (Yescarta, Tecartus, Trodelvy), and other specialty products. Gilead's target market is primarily healthcare providers, patients, and government agencies.
    • The company's revenue is primarily generated from the sale of its pharmaceutical products, with a significant portion coming from HIV and viral hepatitis treatments. Gilead's revenue has been declining in recent years due to competition and pricing pressures in its core markets. However, the company has been actively expanding its product portfolio through acquisitions and collaborations, which could contribute to future revenue growth.
    • Gilead faces significant competition from other large pharmaceutical and biotechnology companies, specialized pharmaceutical firms, and generic drug manufacturers. The biopharmaceutical industry is highly competitive, with significant pricing pressures from government agencies, private insurers, and other third-party payers.
    • For comparative analysis, we will be using Health Care Select Sector SPDR Fund (XLV) as a benchmark and Moderna, Inc. (MRNA) and Amgen, Inc. (AMGN) as industry peers.

  2. Financial Performance:

    • Gilead's revenue has been declining in recent years, with total revenues decreasing 1% in 2023 compared to 2022. This decline was primarily driven by lower Veklury and Liver Disease sales, partially offset by growth in HIV and Oncology. However, in Q2 2024, Gilead's total product sales (excluding Veklury) increased 6% year-over-year to $6.7 billion, and total product sales (including Veklury) increased 5% year-over-year to $6.9 billion.
    • Gilead's profitability has been improving in recent quarters, with non-GAAP diluted EPS growing 50% year-over-year from $1.34 to $2.01 per share in Q2 2024. This improvement is driven by strong demand for its products, particularly in HIV, Liver Disease, and Oncology, as well as disciplined cost management.
    • Gilead's return on average assets (ROA), return on average total equity (ROE), and return on average invested capital (ROIC) have been declining in recent years, which could indicate a decrease in profitability. However, the company's operating margin for Q2 2024 was 47%, the strongest since Q3 2022.
    • Compared to its peers, Gilead has consistently outperformed Moderna, Inc. (MRNA) in terms of financial performance, with the largest outperformance in the 3-year period at 123.59%. However, Gilead has underperformed Amgen, Inc. (AMGN) in most periods, with the largest underperformance in the 3-year period at 33.53%.

  3. Operational Efficiency:

    • Gilead's working capital has been declining in recent years, which could indicate a decrease in financial flexibility. However, the company's current ratio and quick ratio have been declining, which could indicate a decrease in liquidity.
    • Gilead's cash flow has been declining in recent years, which could indicate a decrease in the company's ability to generate cash from its operations. The company's free cash flow has been declining, which could limit its ability to invest in future growth opportunities or weather economic downturns.
    • Gilead's asset utilization efficiency appears to be improving, as evidenced by the increase in working capital and the decrease in total assets. However, the company's gross profit margin, EBITDA margin, and net profit margin have all been declining, which could indicate a decrease in efficiency.
    • Gilead's capital expenditure has been declining in recent years, which could indicate a decrease in investment in future growth opportunities. However, the company's depreciation trends have been relatively stable.
    • Gilead has a strong balance sheet, with a low debt-to-equity ratio and a decreasing level of long-term debt. However, the company's recent acquisition of CymaBay Therapeutics, Inc. has increased its short-term debt, which could put pressure on its financial stability.
    • Gilead's dividend and share repurchase sustainability appear to be strong, with the company consistently paying dividends and repurchasing shares in recent years.
    • Compared to its peers, Gilead has consistently shown a higher Sharpe ratio than both Moderna, Inc. (MRNA) and Amgen, Inc. (AMGN) over the past three years. This suggests that Gilead is offering a better risk-adjusted return than both MRNA and AMGN. Gilead's beta has consistently been lower than both MRNA and AMGN, indicating that Gilead is less sensitive to market movements than both MRNA and AMGN.

  4. Growth Opportunities:

    • Gilead is actively expanding its pipeline and capabilities through strategic acquisitions and collaborations, including with Arcellx, Merus, and Xilio Therapeutics. The company is also focused on expanding the indications for several existing products, including Biktarvy, Vemlidy, and Yescarta.
    • Gilead is advancing its pipeline of long-acting HIV treatment and prevention options, including a once-weekly oral combination with Merck's islatravir. The company is also preparing for the potential launch of seladelpar for primary biliary cholangitis (PBC) in the U.S. and Europe.
    • In Oncology, Gilead is focused on expanding Trodelvy's reach and advancing its TIGIT-based combination therapies.
    • Gilead's recent acquisition of CymaBay Therapeutics, Inc. is expected to contribute to future revenue growth.
    • Gilead's management team has expressed confidence in the company's ability to extend its leadership in HIV and deliver on its long-term growth objectives.

  5. Risks and Threats:

    • Gilead faces significant competition, pricing pressures, and regulatory risks in its core markets, which could impact revenue growth and profitability.
    • Gilead's reliance on sales of HIV and COVID-19 products could be impacted by competition, changes in treatment paradigms, or demand fluctuations.
    • Gilead's recent acquisition of CymaBay Therapeutics, Inc. carries integration and impairment risks.
    • Gilead faces risks associated with manufacturing, including supply chain disruptions and quality issues.
    • Gilead is exposed to regulatory and legal risks, including pricing pressures, healthcare fraud and abuse laws, and product liability claims.
    • Gilead faces risks related to clinical trial failures, delays, or unfavorable results.
    • Gilead's financial flexibility is likely to remain low, and its short-term debt is likely to remain high.
    • Gilead's free cash flow is likely to remain low, which could limit its ability to invest in future growth opportunities or weather economic downturns.

  6. Valuation Analysis:

    • Gilead's valuation metrics, such as P/E, EV/EBITDA, and price-to-sales, are currently below the industry average, which could indicate that the company is undervalued. However, the company's recent acquisition of CymaBay Therapeutics, Inc. has increased its short-term debt, which could put pressure on its financial stability.
    • Compared to its peers, Gilead's valuation metrics are generally lower than those of Moderna, Inc. (MRNA) and Amgen, Inc. (AMGN), which could indicate that Gilead is undervalued. However, Gilead's lower risk profile, as indicated by its lower maximum drawdown and beta, makes it a potentially attractive investment for investors seeking a balance between risk and return.

  7. Price Performance:

    • Gilead's stock price has been volatile in recent years, with a maximum drawdown of 26.59% in Q2 2024. However, the company's stock price has outperformed the Health Care Select Sector SPDR Fund (XLV) over longer periods like 2 years and 3 years.
    • Compared to its peers, Gilead's stock price has consistently outperformed Moderna, Inc. (MRNA) over all periods, with the largest outperformance in the 3-year period at 123.59%. However, Gilead has underperformed Amgen, Inc. (AMGN) in most periods, with the largest underperformance in the 3-year period at 33.53%.

  8. Future Outlook:

    • Gilead's management team has raised its full-year 2024 guidance for non-GAAP operating income and EPS, reflecting the strong operational performance and financial leverage in the business model.
    • Gilead's revenue growth is expected to continue in the coming quarters, driven by strong demand for its products and the launch of new products.
    • Gilead's profitability is expected to improve further, as it continues to control costs and expand its product portfolio.
    • However, the company's financial flexibility is likely to remain low, and its short-term debt is likely to remain high.
    • The company's free cash flow is likely to remain low, which could limit its ability to invest in future growth opportunities or weather economic downturns.

  9. Summary:

    • Gilead Sciences, Inc. (GILD) is a leading biopharmaceutical company with a strong product portfolio and a robust pipeline. The company faces significant competition, pricing pressures, and regulatory risks in its core markets, but it has been actively expanding its product portfolio through acquisitions and collaborations. Gilead's financial performance has been mixed, with revenue declines in 2023 due to lower Veklury and Liver Disease sales, offset by growth in HIV and Oncology. The company has a strong balance sheet but has used significant cash for acquisitions, which could limit financial flexibility going forward.
    • Gilead's key strengths include its strong brand recognition, its diverse product portfolio, and its robust pipeline. The company's key weaknesses include its reliance on sales of HIV and COVID-19 products, its high level of short-term debt, and its declining free cash flow. Gilead's key opportunities include the expansion of its product portfolio, the development of new products, and the growth of the HIV prevention market. The company's key threats include competition, pricing pressures, regulatory risks, and the potential for clinical trial failures.
    • Gilead's valuation metrics are currently below the industry average, which could indicate that the company is undervalued. However, the company's recent acquisition of CymaBay Therapeutics, Inc. has increased its short-term debt, which could put pressure on its financial stability.
    • Gilead's stock price has been volatile in recent years, but the company's stock price has outperformed the Health Care Select Sector SPDR Fund (XLV) over longer periods like 2 years and 3 years.
    • Gilead's future outlook is positive, with the company expected to continue to grow its revenue and profitability in the coming quarters. However, the company's financial flexibility is likely to remain low, and its short-term debt is likely to remain high.
    • Overall, Gilead Sciences, Inc. (GILD) is a solid investment with a lower risk profile than its peers, but investors should consider their individual risk tolerance and investment goals before making any decisions.
Peer fundamentals 
Fundamentals
Insights
  • Gilead Sciences is a leading biopharmaceutical company focused on innovative medicines for viral diseases, oncology, and inflammation, with a diverse portfolio of marketed products and a robust pipeline.
  • The company faces significant competition, pricing pressures, and regulatory risks in its core markets, which could impact revenue growth and profitability.
  • Gilead has been actively expanding its pipeline and capabilities through strategic acquisitions and collaborations, but these transactions carry integration and impairment risks.
  • The company's financial performance has been mixed, with revenue declines in 2023 due to lower Veklury and Liver Disease sales, offset by growth in HIV and Oncology.
  • Gilead has a strong balance sheet but has used significant cash for acquisitions, which could limit financial flexibility going forward.
  • Key risks include clinical trial failures, manufacturing disruptions, legal/regulatory actions, and potential impairment of acquired intangible assets.
  • Gilead's revenue growth is expected to continue in the coming quarters, driven by strong demand for its products and the launch of new products.
  • The company's profitability is expected to improve further, as it continues to control costs and expand its product portfolio.
  • However, the company's financial flexibility is likely to remain low, and its short-term debt is likely to remain high.
  • The company's free cash flow is likely to remain low, which could limit its ability to invest in future growth opportunities or weather economic downturns.
Analysis
  • Revenue - Gilead's revenue has been increasing, indicating strong demand for its products. - This growth is driven by strong demand for its products, particularly in HIV, Liver Disease, and Oncology. - The company's recent acquisition of CymaBay Therapeutics, Inc. is expected to contribute to future revenue growth.
    • Profitability
      • Gilead's profitability has been improving, as evidenced by the increase in Net Income.
      • The company is effectively controlling costs, which is contributing to improved profitability.
      • However, the company's return on average assets, return on average total equity, return on average total capital, and return on average invested capital have all been declining, which could indicate a decrease in profitability.
    • Liquidity
      • Gilead's liquidity position appears to be strong, with a current ratio greater than 1.
      • However, the company's cash and short-term investments have been declining, which could indicate a decrease in financial flexibility.
      • The company's current ratio and quick ratio have been declining, which could indicate a decrease in liquidity.
    • Solvency
      • Gilead's long-term solvency appears to be strong, with a low debt-to-equity ratio and a decreasing level of long-term debt.
      • However, the company's recent acquisition of CymaBay Therapeutics, Inc. has increased its short-term debt, which could put pressure on its financial stability.
      • The company's debt-to-equity ratio has been increasing, which could indicate an increase in financial risk.
    • Operational Efficiency
      • Gilead's asset utilization efficiency appears to be improving, as evidenced by the increase in working capital and the decrease in total assets.
      • However, the company's gross profit margin, EBITDA margin, and net profit margin have all been declining, which could indicate a decrease in efficiency.
    • Cash Flow Analysis
      • Gilead's cash flow has been declining, which could indicate a decrease in the company's ability to generate cash from its operations.
      • The company's free cash flow has been declining, which could limit its ability to invest in future growth opportunities or weather economic downturns.
      • The company's recent acquisition of CymaBay Therapeutics, Inc. is likely a major driver of the decline in cash flow.
    • Risk Factors
      • The company's declining cash and short-term investments could indicate a decrease in financial flexibility.
      • The increase in short-term debt could put pressure on the company's financial stability.
      • The decline in free cash flow could put pressure on the company's long-term solvency.
      • The company's recent acquisition of CymaBay Therapeutics, Inc. carries integration and impairment risks.
      • The company faces significant competition, pricing pressures, and regulatory risks in its core markets, which could impact revenue growth and profitability.
    • Future Outlook
      • Gilead's revenue growth is expected to continue in the coming quarters, driven by strong demand for its products and the launch of new products.
      • The company's profitability is expected to improve further, as it continues to control costs and expand its product portfolio.
      • However, the company's financial flexibility is likely to remain low, and its short-term debt is likely to remain high.
      • The company's free cash flow is likely to remain low, which could limit its ability to invest in future growth opportunities or weather economic downturns.
Most recent earnings report
Financial statements 
All public filings
Comparative Analysis
Benchmarks (as of 2024-10-11)
Health Care Select Sector SPDR Fund (XLV)
  • Performance Comparison: Gilead Sciences, Inc. (GILD) has shown mixed performance compared to Health Care Select Sector SPDR Fund (XLV). While GILD has outperformed XLV over longer periods like 2 years and 3 years, it has underperformed in shorter periods like 1 year and YTD. This suggests that GILD's performance is more volatile and less consistent than XLV's.
  • Risk and Return Analysis: Gilead Sciences, Inc. (GILD) has generally provided higher annualized returns than Health Care Select Sector SPDR Fund (XLV) over the past 3 years. However, GILD's annualized volatility has also been higher than XLV's, indicating that GILD's stock price has been more susceptible to market fluctuations. GILD's maximum drawdown of 26.59% is significantly higher than XLV's maximum drawdown of 16.06%, suggesting that GILD's stock price has experienced larger declines from previous peaks than XLV's. This indicates that GILD carries a higher risk profile than XLV.
  • Risk-Adjusted Performance: Gilead Sciences, Inc. (GILD) has generally offered a lower risk-adjusted return than Health Care Select Sector SPDR Fund (XLV), as indicated by the Sharpe Ratio. XLV consistently shows a higher Sharpe ratio than GILD, indicating that XLV has better risk-adjusted returns over the period. GILD's beta value below 1 suggests that it is less risky than the overall market, but its higher volatility and larger drawdowns suggest that it carries a higher risk profile than XLV.
  • Overall Assessment: Gilead Sciences, Inc. (GILD) has shown potential for higher returns, but it also carries a higher risk profile than Health Care Select Sector SPDR Fund (XLV). GILD's higher volatility and larger drawdowns suggest that investors should be cautious when considering an investment in GILD. XLV's more consistent performance and lower risk profile make it a more attractive investment option for risk-averse investors.
Peers Price History(as of 2024-10-11)
Moderna, Inc. (MRNA)Amgen, Inc. (AMGN)
  • Performance Comparison: Gilead Sciences, Inc. (GILD) has consistently outperformed Moderna, Inc. (MRNA) over all periods, with the largest outperformance in the 3-year period at 123.59%. However, GILD has underperformed Amgen, Inc. (AMGN) in most periods, with the largest underperformance in the 3-year period at 33.53%. This suggests that GILD may be a more volatile investment than AMGN, but it has a higher growth potential than MRNA.
  • Risk and Return Analysis: Gilead Sciences, Inc. (GILD) has shown higher annualized returns than Moderna, Inc. (MRNA) over all periods, but lower returns than Amgen, Inc. (AMGN) in most periods. GILD has also shown lower annualized volatility than both MRNA and AMGN over the past three years. GILD's maximum drawdown of 26.59% in Q2 2024 is significantly lower than MRNA's 88.27% in Q4 2023 and AMGN's 16.71% in Q4 2023. This indicates that GILD has a lower risk profile than both MRNA and AMGN.
  • Risk-Adjusted Performance: Gilead Sciences, Inc. (GILD) has consistently shown a higher Sharpe ratio than both Moderna, Inc. (MRNA) and Amgen, Inc. (AMGN) over the past three years. This suggests that GILD is offering a better risk-adjusted return than both MRNA and AMGN. GILD's beta has consistently been lower than both MRNA and AMGN, indicating that GILD is less sensitive to market movements than both MRNA and AMGN.
  • Overall Assessment: Gilead Sciences, Inc. (GILD) has shown a strong performance over the past three years, with higher returns than Moderna, Inc. (MRNA) and lower volatility than both MRNA and AMGN. GILD's lower risk profile, as indicated by its lower maximum drawdown and beta, makes it a potentially attractive investment for investors seeking a balance between risk and return. However, GILD's underperformance compared to AMGN in most periods suggests that AMGN may be a better investment for investors seeking higher returns. Overall, GILD appears to be a solid investment with a lower risk profile than its peers, but investors should consider their individual risk tolerance and investment goals before making any decisions.
Peers Fundamentals(as of 2024-06-30)
Moderna, Inc. (MRNA)Amgen, Inc. (AMGN)

  1. Market Position and Size:

    • Gilead Sciences, Inc. (GILD) is the largest company in the peer group, with a market capitalization of 98516.1 million, significantly larger than Moderna, Inc. (MRNA) and smaller than Amgen, Inc. (AMGN).
    • GILD's market cap is significantly correlated with its revenue, EBITDA, and net income, reflecting its larger size and established market position.
    • GILD's relative size and market position within the peer group are significant, making it a dominant player in the biotechnology industry.

  2. Profitability and Efficiency:

    • GILD's profitability metrics are significantly higher than both its peers and the industry average, indicating strong pricing power and efficient operations.
    • GILD's efficiency in generating returns is impressive, particularly considering its size and market position. It generates a high return on its assets, equity, and capital, indicating efficient operations and strong profitability.

  3. Financial Health and Stability:

    • GILD's liquidity position is relatively strong, but its debt levels are high. Its high debt levels are a potential risk, as it could make it more vulnerable to economic downturns or changes in interest rates. However, its strong cash flow generation and profitability provide some cushion against these risks.
    • GILD's balance sheet structure is characterized by a high level of debt, which is a potential risk. However, its strong cash flow generation and profitability provide some cushion against these risks.

  4. Valuation and Market Perception:

    • GILD's valuation is relatively low compared to its peers and the industry average, considering its size, profitability, and efficiency. This suggests that the market may be undervaluing GILD's future growth potential. However, its high debt levels and recent earnings decline may be contributing to this undervaluation.

  5. Cash Flow and Capital Management:

    • GILD's cash flow generation is strong, exceeding its peers and the industry average. It generates a high level of free cash flow, indicating strong profitability and efficient operations. This strong cash flow generation provides GILD with flexibility to invest in future growth opportunities, manage its debt, and return value to shareholders.

  6. Growth and Future Prospects:

    • GILD's growth trends are mixed compared to its peers and the industry average. It shows consistently higher growth in EBITDA, Net Income, Basic Earnings per Share, and Free Cash Flow compared to the peer group average. However, it shows consistently lower growth in Sales/Revenue, Total Assets, and Book Value Per Share compared to the peer group average.
    • GILD's year-over-year growth rates exhibit significant fluctuations, particularly in Net Income, Basic Earnings per Share, and Return on Average Total Equity. This suggests that GILD's growth may be volatile and subject to external factors.
    • GILD's 3-year CAGR figures are generally lower than its 5-year CAGR figures, indicating a deceleration in growth. This is particularly evident in Sales/Revenue, EBITDA, Net Income, Basic Earnings per Share, Free Cash Flow, Free Cash Flow Margin, Total Assets, and EBIT Margin. This deceleration in growth may be a concern for investors, as it suggests that GILD may be struggling to maintain its growth momentum.
    • GILD's growth trends suggest that it is facing challenges in maintaining its growth momentum. Its revenue growth is lagging behind its peers, and its profitability is declining. This may be due to increased competition, pricing pressure, and the loss of patent exclusivity for some of its key products.

  7. Potential for Investment:

    • Gilead Sciences, Inc. (GILD) presents a mixed investment proposition. The company boasts a strong financial profile, characterized by high profitability, efficient returns generation, and robust cash flow generation. Its dominant market position and established track record of innovation further enhance its attractiveness. However, GILD's decelerating growth rates, particularly in revenue and asset metrics, raise concerns about its future prospects. Additionally, its high debt levels pose a potential risk, as it could make the company more vulnerable to economic downturns or changes in interest rates.
    • Despite these challenges, GILD's strong financial performance and established market position provide it with a competitive advantage. However, the company must address its decelerating growth and high debt levels to maintain its leadership position in the long term. Investors should carefully consider these factors before making an investment decision.

  8. Key Risks and Considerations:

    • GILD's decelerating growth rates, particularly in revenue and asset metrics, raise concerns about its future prospects.
    • GILD's high debt levels pose a potential risk, as it could make the company more vulnerable to economic downturns or changes in interest rates.
    • The market may be undervaluing GILD's future growth potential due to its high debt levels and recent earnings decline.

  9. Overall Assessment:

    • Gilead Sciences, Inc. (GILD) is a financially strong company with a dominant market position in the biotechnology industry. However, its growth is decelerating, and its high debt levels pose a potential risk. Investors should carefully consider these factors before making an investment decision.