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Executive Chairman Slashes Stake in Gilead Sciences

- By Kyle Ferguson

Insider John Martin, the executive chairman of Gilead Sciences (GILD), sold 73,333 shares on March 3 for $70.38 per share according to a Form 4 filing with the securities and exchange commission

Gilead Sciences has a market cap of $88.72 billion, a price-earnings (P/E) ratio of 6.83, an enterprise value of $103.65 billion and a price-book (P/B) ratio of 4.71.

Headquartered in Foster City, California, Gilead Sciences is a research-based biopharmaceutical company that discovers, develops and markets innovative medicines. The company's mission is to care for people with life-threatening illnesses around the world.

Gilead Sciences primarily focuses on drugs that include treatments for HIV/AIDS, liver diseases, cancer, inflammatory and respiratory diseases and cardiovascular conditions.

According to GuruFocus, Gilead Sciences has a 6 of 10 financial strength rating with a cash-debt ratio of 0.45, an equity-asset ratio of 0.33 and an interest coverage ratio of 18.29. The Piotroski F-Score of 4 indicates the company's financial situation is typical for a stable company.

The company has a 8 of 10 profitability and growth rating. It has an operating margin of 58.02%, a net margin of 44.43%, a return on assets (ROA) of 25.66% and a three-year revenue growth rate of 50.20%.

Martin may have decided to sell the shares because the market price has dipped by an estimated 25% over the previous year.

Jerome Dodson (Trades, Portfolio) commented on Gilead Sciences' declining market price on Jan. 25.

"Our other laggard was Gilead, a biotechnology firm that makes therapies for HIV and hepatitis C. Gilead sliced 98 basis points off the fund's return as its stock declined 29.2%, from $101.19 to $71.61. The stock dropped due to weakness in the hepatitis C business as pricing came under pressure due to increased competition, and the patient population fell because Gilead's drugs cure patients of this damaging disease. The stock is on the bargain table, and the company has a strong balance sheet and a proven track record of innovation so we increased our position throughout the year."

Despite the fact that Martin sold shares of Gilead Sciences, the company has many positive signs:

  • The company is trading at a 9% discount to what gurus Jim Simons (Trades, Portfolio), John Rogers (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Dodson, Ken Fisher (Trades, Portfolio), Murray Stahl (Trades, Portfolio), Lee Ainslie (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio) and Jeff Auxier paid when they increased their stakes in the company during the fourth quarter.
  • The company's price is close to its three-year low.
  • The company's P/E ratio is 6.85 which is close to its 10-year low of 6.67. Buying companies with a low P/E ratio is something that legendary investor John Neff recommended.
  • The company's dividend yield is 2.73% which is ranked higher than 78% of the companies in the Global Biotechnology industry.
  • The company has an Altman Z-Score of 3.67 indicating that the company is in the safe zone and is not in danger of filing for bankruptcy within the next two years.
  • The company's price to free cash flow is 5.81 ranking it above 91% of the 212 companies in the global biotechnology industry.
  • The company is trading well below its intrinsic value according to the Peter Lynch chart below.


Disclosure: Long Gilead Sciences.

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This article first appeared on GuruFocus.