Gilead Sciences (GILD) raises dividend 11% & trades at a discounted valuation.

Gilead’s (NYSE:GILD) dividend was increased by a solid 11%.  Its overall yield is now 3.08%. The firm started paying a dividend in 2015.

Gilead Sciences is a large U.S. based biotechnology firm. The healthcare company discovers and develop drugs products treat infectious diseases.  It product portfolio is concentrated in the HIV and hepatitis B and C arenas.  With several acquisitions, the firm also now has moved into cardiovascular, cancer, and pulmonary.  Gilead’s primary products include Truvada, Viread, Genvoya, Stribild, Harvonia, and Sovaldi.  The firm is located in Foster City, California and founded in 1987.

Gilead initiated its dividend in 2015.  Gilead currently ranks 1st in dividend yield within the large cap healthcare, biotechnology category. The quarterly dividend for the March payment will be $0.52 versus the prior year rate of $0.47 per share. Gilead is not a member  of our Top 100 Dividend Stocks.  (see below).

The dividend will be paid at the new higher rate on March 30, 2017, to shareholders of record at close of business on March 16, 2017. Gilead Sciences Inc. is currently priced at $67.55. Listed in the table below are the quarterly dividend payments since 2015.

Date Quarterly Dividend
3/16/2017 0.52
12/13/2016 0.47
9/14/2016 0.47
6/14/2016 0.47
3/14/2016 0.43
12/14/2015 0.43
9/14/2015 0.43
6/12/2015 0.43


Analysis of Gilead is based upon our five key criteria for the Top 100 list, which include;

Category Value Score
Dividend Yield 3.08% 135
Dividend Growth (2 year avg) 27.8% 49
Forward P/E 8.66 12
S&P Financial Rating A 120
Beta 1.00 125
Total Score 441

Additional Information;

% Yield 2 Year Div. Growth Rate 7 Year Div. Growth Rate SPS 2016 P/S Ratio 10 yr P/S Low 10 yr P/S High 5 yr low Yield % 5 yr max Yield %
3.08% 27.8% N/A 21.75 3.11 3.00 11.80 1.99% 3.08%

Final Analysis;

Positives;

  • Gilead’s dividend yield is above that of the S&P 500 Index.
  • Gilead maintains an investment grade rating of A.
  • Gilead has maintained a two-year growth rate of dividends of 27.8 percent.
  • Gilead is trading toward the bottom of its ten-year average price/sales (P/S) ratio.

Negatives;

  • Gilead has paid out a dividend for only the past 2 years.
  • Gilead’s sales of its key products are rapidly declining.

Latest Earnings & Overall Analysis:

Gilead issued its earnings data on February 7th. The company reported $2.64 earnings per share (EPS) for the quarter. Q4 net income dropped to $3.1 billion from $4.7 billion a year earlier. Q4 revenue from their primary hepatitis C drugs Sovaldi and Harvoni dropped by $1.5 billion coming in at $3.2 billion. Unfortunately, Gilead’s Q4 numbers demonstrated continued erosion in the firm’s primary franchises. The surprise is that the firm produced a positive earnings per share given that the firm had such a large decline in product revenue while spending $1.2 billion on R&D in Q4, up substantially from the previous year.

Q4 2016  Q4 2015  Q4 2017/2016 %
Sales $7.3 billion $8.5 billion (-14%)
Earnings Per Share $2.64 $3.30 (-19%)

The company reported 2016 full-year revenue of $30.4 billion, which was nearly 7% below the 2015 calendar year level. Full-year earnings per share for 2016 was $11.57, a drop of 8.2% from the previous year.  For Gilead, it was simply fewer patients being initiated for treatments.  The firm indicated that about 230,000 U.S. patients utilized their hepatitis C drugs in 2016, below that of the previous year. But unfortunately, the firm anticipates that it will drop further as 160,000 will start treatment in 2017. The biotech giant projected 2017 hepatitis C drug sales of $7.5 billion to $9 billion, about $4 billion lower than Wall Street expectations.

Gilead’s Sovaldi and Harvoni have had a large impact with cure rates above the 90 percentile.  Pricing is also an issue for the firm. It initially charged $1,000 per pill, but its average 2016 price for Harvoni was $15,000 per bottle of 28 pills.  As much of the treatment is for people over age 65 and also the poor, its government rates are critical to its profitability.  The firm indicated within the Medicaid program its price per bottle (28 pills) was around $10,000. And this does not take into consideration that added competition from AbbVie and Merck will come in the next couple of years, further reducing pricing power.

Gilead forecast 2017 sales of $15 billion to $15.5 billion for the rest of its product portfolio including HIV.  Investors in Gilead are hoping for either an acquisition or that its large research & development budget will pay off soon. The firm now has 28 clinical studies in the works, including ten late -stage trials.  The firm does have newer products producing revenue including Epclusa.  The biotech product for HCV brought in just over a billion dollars for the last half of the year. Considering the drug was approved in June, those numbers are outstanding. The firm also saw positive growth for other products.  Q4 revenue for pulmonary drug Letairis was up 15% to $226 million while Ranexa revenue grew to $210 million, a 25% increase. Both will become blockbuster products.

Overall, Gilead is a unique story. Its revenue is in decline. But the revenue piece is large, at $24 billion projected for 2017.  On its current path, revenue should decline each year by about 5% on conservative assumptions. That should allow the firm time to develop replacement products. It maintains a cash hard of near $32 billion and should make a profit of over $10 billion next year due to very high margins. The firm only paid out $2.5 billion to pay dividends, thus there is room for increases. If the firm can make a savvy acquisition or if a few of its plethora of new products pan out, Gilead will be a solid investment. The firm maintains a very low P/E ratio, solid A credit rating, and yield over 3%.  However, based upon the risk factors noted above and declining revenue, we think there are better high yielding healthcare firms (Pfizer, Novartis, & GlaxoSmithKline) out there for dividend investors.

Based on the firm’s future revenue declines and relatively short dividend growth history, Gilead Sciences does not qualify as one of our Top 100 Dividend Stocks

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Gilead Sciences, Inc. Dividend Yield Historical Chart (Click to enlarge)

gild

Chart Explanation:  Dividend growth stocks may be viewed undervalued when the current yield is above historical readings for the past 5 years.

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