Summary:

• Biotechs recover as the White House administration shifts away from the health care reform and drug pricing issues
• Gilead’s (GILD.US on xStation5) valuation looks quite compelling compared to its closest competitors
• Brokerage houses are optimistic on Gilead’s prospects. 15 out of 28 recommendations suggest a ’buy’, 13 calls indicate a ‘hold’ and none of them advises a ‘sell’

Gilead Sciences is a US biopharmaceutical company that has operated for over 30 years. The firm focused initially on antiviral drugs but with time it has broadened the range of its businesses. Gilead may attract investors in terms of financial quality, valuation and current price action of its stock.

Biotechs have been gaining momentum

The biotech stocks have revived recently as the political interest of the White House administration shifted away from the health care reform and drug pricing issues to a tax-cut plan. Although times of unfettered drug pricing probably have come to an end, the tax reform may be beneficial for the pharmaceutical companies. On the other hand, one should bear in mind, that legislative work in the Congress usually proceeds slowly.  

 

 ETF iShares Nasdaq Biotechnology Index (IBB.US on xStation5) has recovered from 2016 lows and it may aim at 2015 highs. Source: xStation5

Investors who look for investing opportunities in Biotechs may choose the Biotechnology Index (IBB.US), which has gained over 22% YTD. Another possibility is to search for a single company from the sector which is likely to beat the benchmark. One of such corporation could be Gilead Sciences. The firm is a leader in producing drugs against HIV hepatitis B and C. What’s more, the company has diversified its portfolio acquiring smaller suppliers of cancer medications in this decade. The company’s business has come under pressure as sales declined because of rising competition. Nevertheless, the new drugs in the pipeline may brighten the Gilead’s outlook and one could observe that the firm’s earnings and revenues have bottomed out already.  Moreover, it’s worth recalling that over the last 5 years the company’s sales grew by 29.4%. It confirms that the Gilead is a solid firm that may deliver decent results for investors.

  Gilead’s earnings and revenues have probably bottomed out already. Source: Bloomberg

Gilead’s valuation looks compelling

Gilead performed worse than its peers over the last year. However, with improved prospects for the company, its relative valuation may seem compelling to some investors. Gilead’s P/E ratio is at 8.85x vs 17.89x average for its closest competitors (theoretically the lower the number is, the more attractive the valuation looks). What’s more the firm’s Return on Equity (RoE) for the firm is at 63.92% and its dividend yield (2.43%) surpasses the average.

 Gilead’s valuation looks quite interesting compared to its closest competitors. Source: Bloomberg

Brokerages houses tend to be optimistic over the Gilead’s prospects

The slight majority of brokerage houses remains positive about Gilead’s outlook. 15 out of 28 recommendations suggest a ’buy’, 13 calls indicate a ‘hold’. It’s worth mentioning that the none of the brokerages advises a ‘sell’. The average price target is at almost $85, which gives shy of 2% upside compared to present market price. Moreover, the short interest currently represents just 1.7% of the company’s shares available as of the latest quarterly filing – in such transactions investors gain, if the stock price declines.

 Brokerage houses are slightly optimistic on Gilead’s prospects. 15 out of 28 recommendations suggest a ’buy’, 13 calls indicate a ‘hold’ and none of them advises a ‘sell’. Source: Bloomberg

Gilead’s stock was moving downward from the mid of 2015 to June 2017. Bulls took over control in the vicinity of $65 handle, but they failed to break 38.2% Fibo retracement which is located close to $86.20 level. However, on the daily interval, a pin bar nearby the upward trend line has been drawn and increasing moving averages suggest that momentum could still be there. It may bode well for further price actions and at the end of the day buyers could make it above this barrier which may set an interesting opportunity to join them.

Gilead’s stock is headed towards an important resistance set by 38.2% Fibo retracement which is located in the vicinity of $86.20 handle. Source: xStation5

Conclusions

A rebound of biotech stocks may attract investors. Gilead is especially worth looking at as its prospects have brightened recently and it offers compelling valuation compared to peers. The slight majority of brokerage houses rates the company as a buy, but on the other hand, none of them recommends selling the Gilead’s shares.

CFDs and synthetic stocks on Gilead are available on xStation under the symbol GILD.US. Both long and short positions are possible.