September 7, 2016
By Mark Terry, BioSpace.com Breaking News Staff
Gilead Sciences jumped to $78.58, apparently because it was upgraded to “buy” at Jefferies. Some analysts think Gilead is likely to climb, while others argue that it’s low for a reason.
Jefferies analyst Brian Abrahams said, “We see a compelling buying opportunity in Gilead at currently-depressed levels.” The stock had previously been rated a “hold.”
Even with the one percent pop, Gilead stock is down around 23 percent so far this year.
TheStreet’s Jim Cramer, on CNBC’s “Stop Trading” segment, notes that just because a stock is cheap doesn’t mean it’s going to improve. He pointed out that the company currently doesn’t have a catalyst to push it higher.
Johanna Bennett, writing for Barron’s yesterday, said, “Once a Wall Street darling, Gilead Sciences now resembles just about any old broken down biotech stock. Patient investors, however, are likely looking at a bargain.”
The company’s high was last summer, when it hit $123.27. That figure is 36 percent higher than its currently price, and the drop seems linked to investor concerns over slowing sales of Gilead’s blockbuster hepatitis C drugs Sovaldi and Harvoni.
Bennett writes, “Now fetching 6.7 times forward earnings, the stock trades as if the drug maker won’t grow revenue again, an unrealistic prospect given Gilead’s promising pipeline and $24 billion in cash sitting on its balance sheet that CEO John Milligan can use to fund acquisitions.”
Abrahams upgraded Gilead’s price target to $91. “Though headwinds to growth remain,” Abrahams wrote in an investor note, “at its current <7x forward earnings multiple, our DCF analysis suggests shares are already more than baking in likely HCV franchise declines, which could enable a setup for upside into continued HIV commercial/clinical success, any strategic moves, or any pipeline surprises.”
Despite concerns over the HCV market, Gilead is still dominant in the HIV and AIDS market. And last spring the company received U.S. Food and Drug Administration (FDA) approvals for TAF-based drugs Odefsey and Descovy, which have shown strong sales.
Gilead is also trying to expand beyond HIV and HCV and into cancer, inflammatory disorders and liver diseases such as hepatitis B and nonalcoholic steatohepatitis (NASH). The company’s filgotinib, which it developed with Belgian company Galapagos NV , is currently being tested in Crohn’s disease and rheumatoid arthritis.
Although the Gilead pipeline is strong, most investors and analysts want the company to go shopping. Bennett writes, “For most investors, Gilead’s prospects rests with acquisitions. It has earned a reputation as a skilled and patient deal maker.”
Case in point: acquiring Pharmasset in 2011 for $11 billion, which everyone at the time criticized for being too expensive, but which also brought in Sovaldi. But since then, Gilead has only made small deals.
“Our sense is that the market remains highly confident in Gilead’s management team,” Abrahams wrote, “suggesting that, particularly with shares trading near 52-week lows, they are more likely to initially get credit for any reasonable deal announcement (provided they do not dramatically overpay).”
There’s conflicting arguments, however. In late August, Piper Jaffray analyst Josh Schimmer wrote in a research note, “Investors have broadly lost confidence in management’s ability to navigate the future competitive landscapes for its businesses and create value.”
Adam Feuerstein, writing in TheStreet on August 31, said, “Gilead’s stock price continues to fall, trading today where it did two years ago. The value play looks more like a trap. Investors once okay with waiting patiently for a Gilead rebound are growing frustrated, even angry, at the company’s lack of progress…. Gilead continues to look cheap, trading at less than seven times next year’s earnings estimate, but the same was said earlier this year when the stock broke below $100, then $90 and then $80 per share.”
So is the recent increase just a fluctuation or a trend? Only time will tell.
