June 24, 2007

Gilead: A reason to welcome the recent sell-off

Recommendation: BUY
Target Price: $90
Disclosure: I am long shares of GILD

You should want to own the best company in the business. And the market has given us the chance again to do that. Gilead Sciences (GILD), a maker of the top HIV drugs on the market, has sold off and is prime to buy again.
GILD has had a brilliant run in 2007. It reached an all-time high of $84.47 in May; it just had a new drug approved; and its market share in HIV continues to increase from already great numbers.
What could be better??? Well, the market has sold off!! GILD is back down to $78.48.
I'm back in. You might want to be too. Net income is poised to grow at 15% this year and 18% next year. Sales should grow upward of 37% this year. It boasts returns on capital of 37% and returns on equity of 56%.
According to my valuations, its intrinsic value is about $82. However, my valuations have increased with each of the past three quarters and I believe this is why my target is above the current intrinsic value. Earnings are around the corner again and Gilead should post another superior quarter. Atripla sales have been outstanding; Letairis just got approved and some analysts believe it will lead the class of pulmonary arterial hypertenstion drugs, which could lead to sales of $500 million by 2011 (and put to rest bickering about the price Gilead paid in its buyout of Myogen).
Market headwinds currently exist, as the Dow and S&P have been very volatile recently. This could lead to another couple of dollars to the downside if the market continues its slide. But, I feel that would be it. The stock itself doesn't have much downside, especially since Letairis is now approved (and a competitor was denied). That should be great for investors.



A well done post a a fine stock.