Today I will have another brief look on my must buys for 2019. In the last two posts I had a look at PRU and ITW both companies I will add this year. The other one was Gilead Science, a pharma company which is struggling in the last year and the share price is now a level where I would consider to buy some shares. So let’s have a look at the current valuation.

Overview

Gilead Sciences develops and markets therapies to treat life-threatening infectious diseases, with the core of its portfolio, focused on HIV and hepatitis B and C. The acquisitions of Corus Pharma, Myogen, CV Therapeutics, Arresto Biosciences, and Calistoga have broadened this focus to include pulmonary and cardiovascular diseases and cancer. Gilead’s acquisition of Pharmasset brought rights to hepatitis C drug Sovaldi, which is also part of combination drug Harvoni, and the Kite acquisition boosted Gilead’s exposure to cell therapy in oncology.

Dividend Data

GILD has quite a short dividend history and has only increased its dividend for 3 years, and pays a dividend since 2015. Given the age of the company and the growth, GILD is in a lot of eyes a candidate of future dividend aristocrat.

Dividend: Currently the company pays a yearly dividend of 2.52 USD, which equals a yield of 3.85%. The latest dividend increase was at 10.5%, which is quite above my goal of having a yearly increase of 7.5%.

Payout Ratio: The current payout ratio is at 38.5%, which is on a very healthy level and leaves enough room for future growth.

Stock Price

The share price of GILD is down by almost 19%% on a yearly basis. This fact makes the stock look quite cheap at the moment with a price of 66.00 USD.

Valuation

Price/Earning: The current P/E ratio is currently at 15.68, the 5 year average is at 18.00. So based on the P/E the company seems to be below the average price level of the last 5 years, which is not super cheap but ok for now.

Price/Book: Similar to the P/E ratio, the price/book ratio is also above the 5 year average. The current P/B ratio is at 3.67 compared to its 5 year average of 7.03.

Free cashflow: The company has enough free cashflow to cover the dividend and to increase the dividend in the upcoming years. So the company should definitely not have any cashflow problems in the future.

Debt/Equity: The current debt/equity ratio is at 1.07 which is a healthy level. Especially looking at their impressive cash balance and the fact that have not issued any new debt is a positive sign.

Growth: For 2019 the median EPS expectations are at 6.60 USD  per share. In the upcoming 5 years analysts expect an average yearly growth of 14.2%.

The Finbox Fair Value is at 82.00 USD, which means an upside of 24.0%

Conclusion

So having a look at the valuation, the stock offers a good buying opportunity at the moment. Nevertheless, there is some risk involved in that stock. The business is shrinking in the last two years and their high dependency on one product might be a problem. But the company has the financial power to make acquisitions and definitely has to decrease their dependency on just one product. I also think they are doing the right steps in that direction. So after I would say GILD is worth a buy at the moment, and out of my 5 stocks to add list currently the cheapest one. Furthermore, I have to mention that I only have one real pharma stock in my portfolio so far.