GILD Stock Forecast: 2Q Results & DD Analysis

This article was written by Anna Latini, a Financial Analyst at I Know First

GILD Stock Forecast


  • Q2 Results Beat Estimates
  • GILD Remains A Solid Income Generating Stock
  • Discount Dividend Model Analysis
  • I Know First Is Bullish on GILD

Gilead Sciences is an American biopharmaceutical company that discovers, develops and commercializes therapeutics.

For many years since the company was founded, it concentrated primarily on antiviral drugs used in the treatment of HIV, hepatitis B, hepatitis C, and influenza. In 2006, Gilead acquired two companies which were developing drugs to treat patients with pulmonary diseases. The company currently produces a range of commercially available products, most notably the Hepatitis C drugs: Harvoni and Sovaldi.

Headquartered and founded in Foster City, California, Gilead has operations in North America, Europe and Australia.

GILD Stock Forecast

Q2 Results Beat Estimates

On Wednesday July 26th the company released its Q2 earnings report. The document reported lower second-quarter profits due to the continued plunge in sales of its flagship hepatitis C drugs, but the results still beat analysts’ expectations and the company updated its full-year sales outlook. Hep C revenue fell 27.5% year over year to $2.9 billion — but the rate of decrease slowed from the first quarter. Furthermore, solid growth for Epclusa partially offset the continued decline in sales for Harvoni and Sovaldi. Adjusted EPS equalled $2.56 a share, while Wall Street analysts, on average, had forecasted adjusted earnings of $2.15 a share, according to Thomson Reuters. However, with a rival product holding strong potential as that of competitor AbbVie Inc, which will likely be approved by the FDA next month, this stronger sales trend is unlikely to continue.

Driving revenues was Gilead’s HIV franchise drove revenues that amounted to $3.6 billion in the second quarter, an impressive 16.1% jump over the prior-year period.

We saw climbing sales for newer HIV drugs, more than making up for lower sales of older drugs as Truvada, Atripla, and Stribild.

Gilead also enjoyed solid growth outside of its antiviral product line-up. Revenue from the company’s other products beyond hep C and HIV totalled $607 million in the second quarter, a 15.6% year-over-year increase.

Major developments during the second quarter included a couple of significant pipeline milestones. On July 18, the Food and Drug Administration approved hepatitis C combo Vosevi and the European Committee for the Medicinal Products for Human Use (CHMP) also gave a positive opinion for the drug. In addition, the company submitted its promising bictegravir/emtricitabine/tenofovir alafenamide combo for treating HIV to U.S. regulatory approval.

Still, the best news of all from Gilead’s second-quarter results was the company outlook revision for full-year 2017. The company now expects net product sales between $24 billion and $25.5 billion, up from the $22.5 billion to $24.5 billion range previously projected.

There were two reasons behind this positive change in outlook. First, Gilead now believes that its non-hepatitis C revenue will come in between $15 billion and $15.5 billion instead of the $15.5 billion to $16 billion range previously forecasted. Second, and more important, the company expects hep C sales for 2017 will be between $8.5 billion and $9.5 billion. Previously, Gilead had anticipated hep C revenue of $7.5 billion to $9 billion.

Obviously, this boost to guidance doesn’t mean that Gilead has solved the problem with its hep C franchise but it has been certainly good news for a biotech stock that was only waiting for something positive to happen.

The company goes into the second half of 2017 with a large cash position and remarkable cash flows. Its HIV franchise continues to be strong, and its pipeline looks pretty solid. Besides, the company is looking for opportunities outside the HIV and HCV markets, but it will need innovation to launch new products to realize growth. Given the troubles in recent quarters to grow revenues the company necessities other ways to expand its business as for example via strategic acquisitions.

In addition, Gilead plans to return to growth by getting new drugs approved, such as Sovaldi and Harvoni.

GILD Stock Forecast

GILD Remains A Solid Income Generating Stock

Gilead is attractive for income investors for its high dividend yield. Currently the dividend yield stands at 2.8%, it is close to a three-year high and it is higher than the industry median of 1.27%.

Over the past year, the company paid out $2.45 billion worth of dividends. During the same period, total free cash flow from operations was $16.6 billion. With this cash generation, the dividend yield seems highly sustainable in the future. The dividend payout ratio, that id calculated by using data of the last two years available was on average equal to 12.5% while the average dividend per share growth rate is 12.2%, calculated with least square regression.

Discount Dividend Model Analysis

Now, let’s analyze GILD stock price through the discounted dividend model. To do so, first, I looked up the current WACC of the company as of today, which equals to 7.12% and I used it as discount rate.

Starting with a dividend per share of $2.08, I assumed a dividend increase of 12.2% for the first year which is equal to the forecasted increase for the year. After that, I estimated the current value of the stock through the H-model, which assumes a growth rate in dividends declining linearly until it reaches a stable long term rate.

The formula I used for my evaluation is the following

GILD Stock Forecast


= 2.08% (Last Declared Dividend)

gL= 3.93% (Calculated with the GG formula g = (P0 x r – D0) / (P0 + D0) = (74.19 x 7.12% – 2.08) / (74.19 + 2.08) = 3.98%

H=2.5 (Growth period of 5 years)

gS=12.2% (Expected dividend growth for this year)

r=7.12% (Company WACC, taken from Morningstars)

The share value I obtained given the above assumptions equals to 80.57 an 8.7% upside from the current price of 74.19. Fellow analyst price targets also range around my estimate, with an average of 76.5 but a maximum of 90.

Even after growth rates of dividends higher than 10%, the total cash spent to pay shareholders is still below the cash flow from operations of the past year. This means there is a lot of room to increase dividends.

According to the model, the downturn in the past months around the stock’s price yields a 8.7% upside potential as of today. At this point, given the difficulties in revenue growth highlighted above, the company needs to focus on strategic acquisitions.

This considered, investors have not much to worry about yet as the company’s dividend yield seems sustainable in the future.

I Know First Is Bullish On GILD 

On August 2, 2017 I Know First issued a bullish forecast on GILD stock both for the short and long term time horizon. My take on the company is thus in line with the prediction of the algorithm that see bright times ahead for GILD.


I Know First Algorithm Heatmap Explanation

The sign of the signal tells in which direction the asset price is expected to go (positive = to go up = Long, negative = to drop = Short position), the signal strength is related to the magnitude of the expected return and is used for ranking purposes of the investment opportunities.

Predictability is the actual fitness function being optimized every day, and can be simplified explained as the correlation based quality measure of the signal. This is a unique indicator of the I Know First algorithm, allowing the user to separate and focus on the most predictable assets according to the algorithm. Ranging between -1 and 1, one should focus on predictability levels significantly above in order to fill confident about/trust the signal.



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