Biotechnology and health care are historically defensive sectors, which counteract market volatility and uncertainty. This is in part why Dividend.com has chosen Gilead Sciences (GILD ) as a Best Dividend Stock and has valued the company slightly above consensus forecasts. A formidable player in the antiviral space, Gilead has made its name from its successful hepatitis C drugs, Sovaldi and Harvoni. According to the company, both products have extremely high cure rates (90% – 96%), with reduced side effects over a shorter period of time. With a potential global market of between 300 – 400 million people (source: WHO, 2015), both products have been shown to increase bottom line earnings already, with $4.45 billion in sales announced in Q1.
- Maker of revolutionary hepatitis C drugs Sovaldi and Harvoni
- 21 products on the market
- 11.78% YTD performance
- Valuation range of $124.82 – $133.34 (current price: $105.66)
- Strong research & development outlook
Company Brief
Gilead Sciences is a biotechnology company based in Foster City, California. Originally specializing in the production and distribution of antivirals for HIV, and hepatitis B and C, the company has now branched into other treatment areas, including pulmonary diseases. Currently, Gilead has 21 products as well as marketing partnerships with Bristol-Myers Squibb, Johnson & Johnson, GlaxoSmithKline, Astellas, Hoffmann La Roche, Pfizer and OSI.
Management
One of the highest paid CEOs, John C. Martin, joined Gilead in 1990 and has a significant background in research and development. A Purdue University alumni, Martin has been CEO since 1996 and previously worked as director of antiviral chemistry at Bristol Myers-Squibb.
Earnings
In July, the company announced better-than-expected quarterly results, with EPS rising to $3.15, versus consensus forecasts of $2.71. Revenue of $8.24 billion in Q2 was attributed to the success of Gilead’s hepatitis C treatments.
Financials
A detailed financial check of its key numbers with its competitors can be found here.
Dividends
Currently, the stock has a relatively conservative dividend yield of 1.63%, with a quarterly distribution. Slightly below the sector average of 2.28%, the yield is still in line with the S&P 500 dividend yield of 1.75%.
Performance
Underperforming the NASDAQ Biotechnology Index (NBI) in 2014, Gilead’s stock price has benefited from buoyant earnings in 2015, with a year-to-date return of 11.78%. Trading 14.83% from its 52-week high, the stock’s softening in share price during the last quarter has been attributed to market conditions and competition concerns.
Analyst Reports
Some of the key recent analyst ratings updates for the stock include:
- July 29 – RBC Capital Markets: Outperform, $130.00 price target
- July 29 – Piper Jaffray: Overweight, $134.00 price target
- July 29 – Oppenheimer: Outperform, $120.00 price target
Valuation
- Discounted Cash Flow Valuation: $133.34
The DCF valuation was based on an extremely conservative annual growth rate over the next five years due to strong earnings from Gilead’s hepatitis and HIV drugs. The annual growth rate then levels out based on the assumption that there are limited drug releases or FDA approvals.
- Dividend Discount Model Valuation: $124.82
The Discounted Dividend Model assumes that the dividend growth rate remains at 1.60%.
- Current Consensus Valuation: $126.83
Insider/Institutional Transactions
CEO John Martin, Director John Cogan, Corporate Affairs EVP Gregg Alton, and EVP Commercial Operations Paul Carter recently exercised options (Aug. 3) to the tune of 4,500,000 shares, with a cost range of between $14.50 to $26.99. Directors have also been net sellers of the stock, with the most recent being on the 26th of August, according to a SEC Form 4 filing. Insiders transactions over the last six months have been 22.68% net negative, versus a total stock insider ownership of 0.40%. This is in contrast to institutional transactions which have only been 2.62% net negative over the same period.
Additional Notes
The stocks in the list above are considered “Buys” at current price/yield levels. When we remove a name from the list, it is almost never a “Sell” call – it simply means we no longer advocate putting new money into the name (essentially a “Hold” call).
To view the current version of this list, please see our Best Dividend Stocks page.
