This week’s Stock of the Week has been hurt by its own success, but it’s ready for a rebound.
Gilead Sciences Inc. (GILD) is a large and successful pharmaceutical company with products that treat HIV, certain blood cancers, high blood pressure, angina and the flu—it is the maker of Tamiflu.
In a sense, the company has become a victim of its own success. Its blockbuster hepatitis C drugs Harvoni, Sovaldi and Epclusa have such high cure rates that the need for them has dropped significantly—the primary reason for a revenue drop from $26.1 billion last year to a likely $21.4 billion this year and $21.6 billion next year. But investors focusing on those numbers and the earnings drop are missing Gilead’s major strengths, which include $37 billion in cash to fund research, relatively little debt, benefits from the new US tax law that the company intends to reinvest in research and development, and Gilead’s increasing focus on developing products to treat cancer in innovative ways.
Gilead has also found a way to limit the impact of generic competition as its products come off patent by making agreements with generic producers instead of trying to fight them. The firm is repositioning itself skillfully for the future, and its dividend of $2.28/share/yr., recently yielding 2.8%, appears secure.
Fiscal year: December. Earnings per share: 2019 est./$6.60…2018 est./$6.51…2017/$8.79.
Fraj Lazreg, CFM, is lead portfolio manager at Investors’ Advantage Portfolios, Orangeburg, New York, which has $100 million under management.