Will Ebiefung

About the Author Will Ebiefung

Will Ebiefung studied finance and accounting at the University of Tennesee. He works as a freelance investment analyst focusing on equities with market caps below $100 million. In addition to writing, Will is a full-time investor focusing on web properties and debt-based securities.

Gilead Sciences, Inc. (GILD) Continues to Fail, But the Stock Remains Cheap

Gilead Sciences, Inc. (NASDAQ:GILD) stock cratered after disappointing first quarter earnings. Revenues of $6.51 billion came in $110 million below estimates and represented a YoY decline of 16.4%.  The bottom line results were also bad with EPS $0.05 below the expected $2.28 per share.

Gilead’s poor first quarter showing could be the result of industry-wide softness in healthcare from January to April, and may not predict a weaker full year.

Gilead reiterates full year guidance of $22.5-24.5 billion in annual revenue for 2017, but the market is not impressed. Gilead’s Hepatitis C portfolio continues to freefall, and this decline is not being negated by the company’s growth drivers. That being said, Gilead’s valuation remains low, and takeover interest is still a possibility. The stock has recovered some of its May 3rd losses.

A Closer Look at Operational Results

Gilead’s first quarter net product sales are $6.38 billion – 17% down from last year’s first quarter and 12% down from the fourth quarter of last year. The slide is driven by Gilead’s antiviral products division which fell by 19% in total. The centerpiece of Gilead’s failure is HCV which fell a staggering 40% YoY.

The HCV declines are expected, but the problem is that the antiviral product segment’s growth drivers (HIV and HBV drugs) are not growing fast enough to negative the freefalling HCV sales. HIV and HBV only grew 13% YoY and declined 3% quarter-over-quarter.

To make matters worse, many of Gilead’s expenses are increasing in the face of declining revenue. Research and development expense is up 16% while SG&A is up 26% YoY – even the effective tax rate increased from 19% to 25% YoY.  Gilead looks like it has a problem with poor management execution. An acquisition of Gilded my turn out to be the best way to unlock the company’s value through new leadership.


Despite atrocious operating results, Gilead Sciences is still a relatively cheap stock relative to the other options in the market. At the stock price of $67.56, Gilead has a market cap of $88.32 billion. With a large amount of cash and cash equivalents on the balance sheet, Gilead has an enterprise value of only $53.84 billion, according to Ycharts.

With TTM EBITDA of $18.08 billion, Gilead has an incredibly low EV/EBITDA of 2.978. Such a tiny EBITDA multiple will keep Gilead attractive from an acquisition perspective if other companies feel like they can do a better job than the current management team. If Gilead’s poor performance continues, an acquisition may be the best hope for shareholders to benefit from this troubled pharmaceutical.

Regardless, both a future acquisition or a management-driven turnaround will depend on Gilead’s growth drivers instead of its declining HCV business. Right now, areas of strength include the TAF regimens – which are sure to boost the HIV business -. And in addition to HIV, Gilead has promising candidates in nonalcoholic steatohepatitis (NASH), autoimmune diseases, and oncology.


Gilead’s first quarter results were terrible, and the losses in the company’s HCV business are still too large to be negated by its growth drivers. The good news is that Gilead stock’s valuation is still relatively low, and this raises the possibility of an acquisition if management can’t turn the company around on its own.

Gilead Sciences has a lot of work to do if it wants to bring the stock price up and deliver returns to its investors. The turnaround doesn’t look likely this year.


Disclaimer: The author has no position or business relationship in any stock or company mentioned in this article, and he has no plans to initiate. The author is not receiving compensation for this article expect from Smarter Analyst. This article is intended for informational and entertainment use only, and should not be construed as an investment advice.

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