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Gilead Sciences' Financial Strength
One of Gilead Sciences’ major benefits is that if COVID-19 doesn’t succeed, the remainder of its portfolio still means that the company is undervalued.
Gilead Sciences Earnings - Gilead Sciences Investor Presentation
This is clear if you take a look at the company’s 1Q 2020 earnings, which it released almost in the background of all the recent COVID-19-related news. Specifically, despite investor fears over the company’s declining businesses, the company earned $5.5 billion in 1Q 2020, up from $5.2 billion a year ago. That’s a 5% YoY increase for the company, supported by a 14% YoY growth in the company’s HIV business.
At the same time, the company’s margins remained strong, resulting in Non-GAAP net income of $2.1 billion. The company has continued to be what I call the “Apple” of biotech companies, with its respectable dividend and continued share buybacks. YoY its share count has declined by 1%.
Outside of this, Gilead Sciences has recently made a number of acquisitions, such as Filgotinib, Forty-Seven, and Yescarta. Along with other acquisitions, these things together have the potential to help support the company’s HIV business, even past expiration. Gilead Sciences has built a long-term HIV portfolio, with patents not expiring until 2038, and its current actions should help support long-term shareholder rewards.
Gilead Sciences' Shareholder Rewards
Overall, Gilead Sciences’ portfolio put together means significant shareholder rewards.
Gilead Sciences Shareholder Rewards - Gilead Sciences Investor Presentation
Gilead Sciences is focused on improving the potential for shareholder rewards significantly. The company paid a quarterly dividend of $874 million, itself an almost 4% yield. Past that, the company repurchased $1.3 billion worth of shares at ~$70 / share. Not only is that 15% below current stock prices, which is in of itself impressive, but it pushes the company’s total shareholder yield on an annualized basis to nearly double digits.
In fact, the company is one of the few to succeed under shareholder repurchases, despite the recent crash. Since the company’s Jan. 2016 share repurchase program started, the company has managed to repurchase ~10% of itself for all below current share prices. Since 2021, it’s repurchased 27% of shares outstanding. I expect repurchases to continue going forward.
Investing in Gilead Sciences, in the current low interest environment, means near double-digit rewards going forward.
Gilead Sciences' Risk
Gilead Sciences really only has a single risk to pay attention to in the immediate term, however, that risk is more of an opportunity. That risk is the chance that investors, as COVID-19 leaves, sell off Gilead Sciences' stock anticipating much lower profits. Given that the company spent the early-2020s near $60 a share, it wouldn’t be surprising to see the share price drop back down.
However, in such a scenario, as discussed above, the company’s remaining businesses remain quite strong. As a result, that would actually make that time an investment opportunity worth paying close attention to. I personally have large limit orders outstanding on the stock with a $60 strike. Gilead Sciences is a quality long-term investment.
Gilead Sciences has an impressive portfolio of assets worth paying close attention to. Not only has the company’s Remdesivir assets performed quite well, setting up the company to potentially make billions, improve its PR, or at least subsidize its remaining assets, but the remainder of the company’s portfolio has performed well. That means the company is in a win-win scenario.
In the event that COVID-19 goes away, Gilead Sciences continues performing as it has been. The company’s recent acquisitions grow and the remainder of the company’s businesses continue to generate significant earnings. The company has focused on shareholder returns and it has the potential to generate double-digit rewards for shareholders. Overall, the company is a significant investment.