Going Viral

The future is infectious.

There will be blood, which means there will be blood-borne viruses.

Which means Gilead Sciences (GILD) should continue to strike it rich from its leading drug franchises for the treatment of human immunodeficiency virus (HIV) as well as hepatitis C.

Confidence in that last point has been shaken over the last two years as Gilead’s hepatitis C sales tailed off because of its drugs’ success in curing the disease as well as inroads by competitors.

As a result, Gilead’s share price slumped from $120 in June 2015 to $64 last month. It has since rallied 18%.

Despite the recent rebound, Gilead remains a compelling opportunity. During the first six months of 2017 the company generated $5.8 billion of net income, and used less than a quarter of that to pay dividends yielding an annualized 2.7% at the current share price. Share repurchases consumed $695 million, or another 12% of net income.

And while second-quarter sales were down 8% year-over-year, they rose 10% sequentially, allowing Gilead to increase its full-year sales and profit guidance when it reported the results last week.

Gilead’s $36.5 billion cash pile comfortably exceeds its $26.5 billion in long-term debt. Its liquid balance sheet and recent sales slump have fueled speculation that the company might make a splashy acquisition in pursuit of growth, and management continues to acknowledge interest in such a transaction.

But with its shares priced at perhaps 9 times this year’s earnings, Gilead need only stick to its knitting to provide a good long-term return. While hepatitis C sales have begun to stabilize, the HIV franchise is powering ahead on the strength of new drugs still taking share in growing markets of U.S. as well as Europe.

With near-term risk reduced, the stock’s huge downward momentum broken and valuation well below that of peers, the time is right to add this cash cow to the portfolio. Option traders interested in a more aggressive, leveraged bet should look at cheap in-the-money calls, like the December $65s recently offered at $11.95 per contract.


Stock Talk

Ronald Laraneta

Ronald Laraneta

What are your views on PTY

Igor Greenwald

Igor Greenwald

Trading at a 14% premium to net asset value, but with a 9% distribution yield it should keep working until the next serious market hiccup. When the corporate credit boom cycles to bust this could get ugly, but we’re probably still at least two years from there.



Do you consider PCI to have same problems are PTY described below?

Add New Comments

You must be logged in to post to Stock Talk OR create an account