Is Gilead Sciences Still a Buy After the Recent Stock Rally?

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E – Debt to Equity Ratio is Fair

Gilead’s debt to equity ratio of 1.028 could certainly be better, and while not as impressive as some of its larger competitors, in the world of bio-tech far higher ratios have become standard. They took on a substantial amount of debt (and spent a large portion of their cash) in the acquisition of Pharmasset back in 2011, in order to acquire Pharmasset’s coveted Hepatitis C pipeline (including sofosbuvir). They now have $1.695 billion in cash, $8.75 billion in book value and $8.993 billion in debt. While Pharmasset did not come cheap, Gilead’s bet on them appears poised to pay off.

T – Technicals on the Stock Chart are Strong

This past month, Gilead has gained over 11% while the S&P 500 lost 0.52%. Their numbers are particularly impressive over the past year.  YTD Gilead has gained over 82% compared to 14.96% for the S&P 500, and for the calendar year the stock has gained 89.44% compared to 16.35% for the S&P 500. Looking at the 3-year return, Gilead demonstrates a respectable return of 61.35% compared to 36.02% for the S&P 500.

At its close of 74.61 on December 3rd, Gilead is trading at 7.41% above its 50-day SMA of 69.61. It is 18.15% above its 100-day SMA of 63.15 and 33.29% above its 200-day SMA of $56.07.

E – Revenue and Annual Earnings Have Been Impressive

Gilead’s annual revenue and earnings have impressively grown over the last five years.

      2007       2008       2009       2010       2011
Revenue ($)in billions

4.230

5.336

7.011

7.949

8.385

Diluted EPS ($)

1.64

2.06

2.82

3.32

3.55

 

While profits this last quarter topped analysts’ estimates, they were down from the same quarter one year ago. But much of this decrease in profit was due to increased R&D costs, as Gilead invests in development of an extensive pipeline. Sales of Gilead’s lead HIV drugs have proven strong, as revenue increased 14% compared to the year-ago quarter.

     9/2011      12/2011      3/2012      6/2012      9/2012
Revenue ($)in billions

2.122

2.200

2.282

2.405

2.427

Diluted EPS ($)

.95

.87

.57

.91

.85

 

Trends Support the Industry

The progress that the pharmaceutical and healthcare industries have made in the last decade in the treatment of HIV has been…

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