The market rally, which accompanied the Federal Reserve Chair Jerome Powell’s narrative of the beginning of the “disinflationary process,” fizzled out due to an estimate-crushing addition of 517,000 jobs in January.
The latest employment data echoed Mr. Powell’s concern regarding an “out of balance” labor market and stoked investors’ concern best summed up by the Fed Chair himself, “So if we continue to get, for example, strong labor market reports or higher inflation reports, it may well be the case that we have to do more and raise rates more than is priced in.”
With yet another bout of sell-off that caused the S&P 500 to retreat 1.1% during the last trading session, estimates of investment returns based on capital appreciation have temporarily gone out of the window. Hence, investing in dividend-paying stocks, such as Gilead Sciences, Inc. (GILD), could ensure consistent income generation to endure a topsy-turvy market in the foreseeable future.
As a biopharmaceutical company, GILD primarily develops and commercializes medicine to prevent and treat diseases such as HIV, viral hepatitis, and cancer.
On February 2, GILD announced a 2.7% increase in the company’s cash dividend. As a result, the company’s quarterly cash dividend amounted to $0.75 per share of common stock. The dividend is payable on March 30, 2023, to stockholders of record at the close of business on March 15, 2023.
GILD pays a total of $3 annually as dividends. This translates to a forward yield of 3.47% at the current price, comparable to the 4-year average dividend yield of 4%. The company pays out a whopping 40.2% of its earnings as dividends.
GILD’s dividend payouts have increased for seven consecutive years. Over the past five years, its dividend payouts have grown at a 7% CAGR.
GILD’s impressive track record of returning capital to shareholders is supported by its excellent business performance. Over the past three years, both revenue and EBITDA have grown at 6.7% CAGR.
The stock has gained 39.1% over the past six months to close the last trading session at $85.67.
Let’s closely examine the other factors that make it worthy of investment.
Positive Recent Developments
On February 3, GILD announced that the U.S. Food and Drug Administration (FDA) had approved Trodelvy (sacituzumab govitecan-hziy) for treating adult patients with pre-treated HR+/HER2- metastatic breast cancer. With this approval, the company could offer patients an additional line of treatment to improve survival rates and quality of life after endocrine-based therapy and chemotherapy.
On January 3, GILD and EVOQ Therapeutics, Inc. announced a collaboration and licensing agreement. Under the agreement, GILD would receive the rights to exclusively license EVOQ’s NanoDisc technology to develop and commercialize EVOQ’s proprietary technology for treating rheumatoid arthritis (RA) and lupus.
On December 27, GILD and Jounce Therapeutics, Inc. (JNCE) amended their existing license agreement for GS-1811 (formerly JTX-1811). This amendment would enable GILD to acquire all remaining rights to potential first-in-class Immunotherapy GS-1811 from JNCE as a potential treatment for solid tumors.
Solid Financials
For the fourth quarter of fiscal 2022, which ended December 31, GILD’s total revenues increased 2% year-over-year to $7.39 billion, driven by increased sales in Oncology, HIV, and hepatitis C virus (HCV), partially offset by lower Veklury (remdesivir) sales.
During the same period, GILD’s non-GAAP operating income increased 79.1% year-over-year to $2.70 billion, while the non-GAAP net income attributable to GILD increased 143.2% year-over-year to $2.11 billion. As a result, the company’s quarterly non-GAAP EPS increased 142% year-over-year to $1.67.
Attractive Valuation
In terms of its forward P/E, GILD is trading at 12.50x, lower than the industry average of 19.59x. Similarly, the stock’s forward EV/Sales and EV/EBITDA multiples of 3.73 and 7.41 also compare favorably to the respective industry averages of 4.17 and 13.67.
Moreover, GILD’s forward Price/Cash Flow multiple of 12.42 is 26.9% lower than the industry average of 16.99.
Impressive Profitability
GILD’s trailing 12-month gross profit margin of 79.26% is higher than the industry average of 55.29%. Also, the company’s trailing-12-month EBITDA margin and net income margin of 47.89% and 16.83% comfortably exceed the industry averages of 3.91% and negative 5.84%, respectively.
Additionally, GILD’s trailing-12-month ROCE, ROTC, and ROTA of 21.72%, 19.70%, and 7.27% compare favorably to the respective negative industry averages.
POWR Ratings Reflect Promising Prospects
GILD’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. GILD also has Grade A for Value and Growth, consistent with its attractive valuation, healthy track record, and optimistic analyst estimates.
GILD has a grade B for Quality, in sync with its consistent profitability. Unsurprisingly, it is ranked #2 of 401 stocks in the Biotech industry.
Click here to see the additional POWR Ratings for GILD’s Sentiment, Momentum, and Stability.
Bottom Line
Analysts expect GILD’s revenue and EPS for the fiscal year 2024 to come in at $26.99 billion and $7.25, indicating 1.6% and 5.8% increases year-over-year, respectively.
Regardless of the flagging sales of Veklury (remdesivir) due to decreasing covid-related hospitalizations and increasing availability of oral antivirals, management’s increasing focus on growth drivers, such as Trodelvy and Biktarvy, keeps GILD in good stead.
In addition, the company’s robust financials, capital discipline, and income generation track record make it an attractive investment option at the current valuation for solid risk-adjusted returns.
How Does Gilead Sciences, Inc. (GILD) Stack up Against Its Peers?
While GILD ranks #2 in its industry and has an overall POWR Rating of A, which equates to a Strong Buy, investors could also consider looking at its A-rated peers: Vertex Pharmaceuticals Incorporated (VRTX), Biogen Inc. (BIIB), and United Therapeutics Corporation (UTHR).
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GILD shares were unchanged in premarket trading Thursday. Year-to-date, GILD has declined 0.00%, versus a 8.19% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.
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