Health and Healthcare

Are Analysts Secretly Calling Gilead a Screaming Buy?

Jon C. Ogg

Published: October 12, 2017 2:05 pm

Last Updated: January 12, 2020 7:14 am

Sometimes it turns out that great growth companies eventually run into the day when getting the growth of the past is not possible. That has been the case of Gilead Sciences Inc. (NASDAQ: GILD) since 2015. After an explosive hep-C drug growth came into play, Gilead shares had been in a long slow decline for about two years. That started to change in May, and now Gilead has completed close to a $12 billion acquisition of Kite Pharma to bring in more of a solid drug pipeline.

What has been slowly happening since May of this year is that Gilead shares have quietly recovered. After bottoming under $65, Gilead shares are now closer to $82, and it’s easy to forget that the stock is within about $5 of being back at a 52-week high. After all, having fallen from $117 at the peak in 2015 was a long painful process.

Gilead also has been getting ever more analysts who finally threw in their towels in 2016 and earlier in 2017 to start issuing upgrades. Most of these analysts did not go down to “Sell” ratings, but Wall Street analysts started to reach a point at which they would blush if they tried to explain why Gilead was finally attractive again.

24/7 Wall St. has tracked multiple analyst upgrades in recent weeks, and this is all around the closing of the prior Kite Pharma acquisition. Even though some of the analyst ratings have Hold or Market Perform ratings, it is beginning to feel like the tide may have turned here.

For starters, Gilead is a $107 billion market cap biotech. It now feels like a Big Pharma stock, like other biotech giants, with share buyback plans and hefty dividend yields to boot. At this time, Gilead’s stock price as roughly $81.50, and it is valued at 9.3 times expected 2017 earnings and valued at less than 11 times expected 2018 earnings.

Gilead’s consensus analyst target price from Thomson Reuters is now back up to $84.35. As we have suggested, that consensus target price from the Thomson Reuters analyst universe has been rising. It was $81.88 just a month earlier, it was $79.68 in mid-August and it was $77.29 in mid-July, before its last earnings report.

Below are some of the top analyst upgrades and positive ratings seen around Gilead shares in recent weeks. Those dates have been included to show the order chronologically.

On October 11, Gilead was started with an Overweight rating and assigned a $90 price target at Barclays. That was only a call for 8.4% upside from the prior $83.04 close, before taking its 2.5% dividend yield into consideration.

On October 4, Gilead was reinstated with a Hold rating and given a $93 target price. That is higher than most targets despite the cautionary “Hold” title, and it compared with a prior $83.19 close. The firm noted that it has a fundamental positive and underlying view that KITE Axi-cel sales will get off to a good start and build some momentum while investors wait to see how HCV volumes and prices settle out in the second half of this year.

Argus recently reaffirmed its Buy rating and its $100 target, and the independent research firm had just raised its rating back to Buy from Hold back on August 31. Argus admitted that it is concerned about increased competition in the hep-C market, but it thinks patient volumes may decline less than previously projected in 2017 and may even increase in 2018 due to increased screening and heightened awareness of new treatments.

On October 5, Leerink Swann maintained its Market Perform rating but raised its target to $89 from $87.

On September 30, CFRA (S&P) reiterated its Buy rating and $88 target

On September 25, Credit Suisse maintained its Outperform rating and $85 target price. The firm noted that the timing of the COO’s announced retirement is not a negative for Gilead. It even noted that Kevin Young had previously been retired but had left retirement in order to help the company through some specific goals.

On September 15, RBC Capital Markets started coverage on Gilead as Outperform and with a $94 price target.

If you go all the way back to the end of June, Deutsche Bank started the stock with a Buy rating, but its target at the time was just $79 (versus $70.48 at that time).

To show both sides of the coin, there has still been some cautious commentary calls without as much upside:

• On October 6, Morgan Stanley maintained its Equal Weight rating and lifted its target to $83 from $77.
• Oppenheimer started Gilead as Perform on October 5, asking when the supertanker will accelerate.
• On October 4, Merrill Lynch maintained a Neutral rating but lowered its price target to $86 from $87.

One last consideration here, though it is not exactly analyst-driven, is the short interest. These are the numbers of shares that are being bet on a drop in the weeks or months ahead. The short interest at the end of September was up at 22.8 million shares, more than double from the 10.1 million and 10.8 million shares short at the May 2017 short interest date readings when the stock was bottoming out.