Gilead Sciences (GILD) is a biotechnology company that focuses on antiviral medications and treatments, explains Ben Reynolds, editor of Sure Retirement.
The company generates significant revenue from treatments for HIV, Hepatitis B and C, and various types of cancer. Gilead was founded in 1987, produces $25 billion in annual revenue, and trades with a market capitalization of $82 billion.
On February 4th, 2021, Gilead Sciences reported Q4 and full-year 2020 results for the period ending December 31st, 2020. The company generated revenue of $7.4 billion during the quarter, representing 26% growth compared to the previous year’s quarter. Gilead’s Hepatitis C franchise continued to shrink, but Gilead’s other businesses showed a strong performance.
The most meaningful growth driver was Gilead’s COVID-19 therapy Veklury (remdesivir), which generated revenue of $1.9 billion during the quarter. Biktarvy, Gilead’s largest drug in terms of sales volumes, grew 32% year-over-year, although that was offset by declines in other HIV therapies that were replaced by Biktarvy.
The company generated earnings-per-share of $2.19 during the fourth quarter compared to $1.10 in the prior year. It received a lot of publicity during the last couple of months thanks to the fact that its drug remdesivir is one of the most important treatment options for COVID-19.
It expects $23.7 to $25.1 billion in revenue for 2021 and earnings-per-share of $6.75 to $7.45. Gilead also announced that it would increase its dividend by 4.4% to $0.71 per quarter.
Gilead’s competitive advantage is its treatments for HIV and Hepatitis B and C, as it leads these spaces in terms of market share.
The company's only “issue” is that its treatments work so well that some patients don’t need them any longer, reducing the patient pool. Gilead’s continued work on cancer treatments should help it offset some of this and help it maintain an advantage in the future.
Gilead isn’t necessarily beholden to economic conditions as people generally seek treatment for ailments irrespective of whether we’re in a recession or not. Gilead’s profits held up quite well during the Great Recession and proved resilient once again in 2020.
We expect the company to produce 5% annual growth moving forward as the company continues to see top line expansion from new treatments, and its takeover of Immunomedics should help as well. Gilead should see strong operating leverage as revenue moves higher given that biotechs generally have very small variable costs, so incremental revenue produces large margin gains.
We see Gilead producing 12.5% total annual returns in the coming years, consisting of 5% projected earnings-per-share growth, the 4.4% dividend yield and a 3.7% tailwind from the valuation.
Gilead shares trade for 9.2 times this year’s earnings-per-share estimate of $7.10, and we assess fair value at 11 times earnings. The moderate payout ratio also provides a long dividend growth runway.
