Gilead: Disappointment or Opportunity?

09/16/2016 7:00 am EST


Stephen Leeb

Founder and Research Chairman, Leeb Group

This leading biotech firm was hit hard due to disappointing sales for its hepatitis C regimen; we think the reaction was more severe than warranted, explains growth stock expert Stephen Leeb, editor of The Complete Investor.

Gilead Sciences (GILD) saw its shares slide about 15 percent from the high $80s to the mid $70s before recovering slightly.

The company’s hep C franchise has stagnated but not fallen and will probably be at least slightly reinvigorated by the recent approval of Epclusa, the first single-tablet regimen for curing many varieties of the disease.

Gilead derives about half of its revenues from treating liver-related diseases, especially hep C, and the other half from its wide-ranging franchise in treating AIDs.

While growth for both franchises has begun to slow, Wall Street is treating the stock as if it is on the verge of bankruptcy. The stock’s P/E is under 7, while its free cash flow yield exceeds 15 percent.

Various catalysts could propel the stock significantly higher. Gilead is seeking approval for a drug for treating hepatitis B, while several other drugs are in phase 2 and phase 3 testing.

Another potential catalyst would be a major acquisition, which could be easily financed thanks to the company’s huge cash hoard and massive cash flow yield.

Or, the converse to that, a big pharmaceutical company could take Gilead over just for the nearly assured long-term cash return.

And last, the company might divide itself into two nearly equal parts, one dedicated to hepatitis and the other to HIV. We think the market would award each a higher multiple than it has granted the entire company.

This is a stock where the upside dwarfs the downside. We are buyers at current prices and aggressive buyers if the stock dips back down toward the mid $70s.

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By Stephen Leeb, Editor of The Complete Investor

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