Gilead Sciences (NASDAQ: GILD) a research-oriented biopharmaceutical organisation, which is specialised in the discovery, development, and commercialization of innovative medicines, was in the news recently, since its share price went to a considerably low level, especially in a historical sense. On the other hand, the company maintains a huge cash pile that could potentially be used for M&A practices.
It’s clear that this doesn’t make any sense. Why would a biopharma share price decrease when there is a huge potential for M&A and positive development of the organisation? This article analyses the recent developments, the current situation, and gives a short-term outlook on whether a potential investor should buy, hold, or sell this share.
Evidently, Gilead Sciences has been facing a race to the bottom in terms of its share price movement in recent months. The share price opened at $72.34 on January 3rd, 2017; however, it further decreased to $64.81 as of the writing of this article. That’s a negative change of 10.41% in only five months time. This initial downward trend commenced on June 25th, 2015, when the share price had its all-time high of $122.48. This indicates that the share price of Gilead Sciences was almost cut in half almost two years after its all-time high.
The main reason for this decline is related to the companies’ hepatitis C virus (HCV) franchise that has been shrinking in terms of value throughout recent years. Relatively, investors were highly disappointed after Q1 financial results, since revenue and earnings further declined in comparison with Q1 2016.
This is hardly surprising as product sales declined by 16.98%, while net income attributable to Gilead and diluted earning per share indicated a decrease of 24.23% and 18.97%, respectively. In more depth, the HCV portion of product sales was the main catalyst behind the decline which the company admitted in its Q1 2017 financial release.
HCV product sales went down by 39.53% in a single year. Moreover, the stake of HCV product sales related to the overall product sales went down from 55.98% to 40.77% in the equivalent time period, which means sales and margins are decreasing. It seems the cash cow is becoming a lazy dog that should make room for a new star to rise.
On the other hand, cash, cash equivalents, and marketable securities increased from $32.4b (Q4 2016) to $34.0b (Q1 2017), which is equivalent to an appreciation of 4.94%. The full disclosure can be seen in the overview here.
This huge cash pile, stock repurchases, and extra cash dividends indicate the corporation is up to something and this might be the right moment for the contrarian investor to step in. The remainder of this article indicates the potential for investors and why an investment should be on the front of a long-term traders’ mind.
The Current Situation
At the moment, the company is still not performing as it should be. Last month, the share price fell by 4.73%. However, it seems the dark days are behind us, as a late stage success of an HIV single tablet drug regimen came to the forefront and upcoming pipeline successes are on the way.
Moreover, Q1 results actually show the current drug R&D stages and it has great potential for the upcoming period. A number of drug developments are moving further in the pipeline and this is going to deliver some great revenues in the near future.
Nevertheless, there is significant uncertainty related to the huge cash pile that is still visible on the companies’ books. Trump’s tax overhaul and the possible delay of the tax reform plan may have a negative impact on the company, as much of Gilead’s cash mountain is located overseas. The implementation of the plan would make it more tax beneficial to move cash back to the United States to further use it as an input for acquisitions or pipeline expanding; however, the tax plan seems to have a delay.
A crucial question that comes to the forefront now is how Gilead Sciences is performing when it is compared with its direct competition in terms of share price development. In short, not bad. It’s evident that Gilead Sciences performance is decent when compared with its direct competition. Previously, the Q1 2017 results were highlighted and while the company experienced a great period from 2012 until 2015, the bullish trend didn’t last.
In the future, Gilead Sciences has great bullish share price potential. Although the HCV franchise portion is declining, the company has upcoming drug projects in the pipeline that are experiencing great progress, according to Gilead’s latest quarterly results. Furthermore, the company has a huge cash pile that can be used for further pipeline expansion and potential mergers and acquisitions. The analysts confirm this potential in the charts here.
From these charts, most analysts give a hold or strong buy recommendation. Moreover, a consensus forecast of $87 is given for the share price in the near future.
Nevertheless, there is quite some uncertainty related to Gilead Sciences, especially if the huge cash pile is analysed. Most of its cash is situated in non-US countries and the company will have a rough period ahead as long as the US tax reform is not executed yet. Time will tell what will happen with Gilead’s revenues, earnings, and share price movement.
The author of this article assumes the share price will move to the consensus forecast level because new drug innovations are moving further in the pipeline, which result in a better revenue position and in the end in an improved net income. Furthermore, the situation could be of an even more bullish nature if Trump’s tax plan is implemented in the near future.
Will this thirst for acquisitions allow the biopharmaceutical bull to rein free again and leave its bearish tendencies behind? Yes, that could definitely be the case; however, there is quite some uncertainty in store after the share price reaches the consensus forecasat level.
Google to Open Artificial Intelligence Centre in China
Google will be opening its first artificial intelligence (AI) research centre in China, despite many of its services being blocked there.
Fei-Fei Li, Chief Scientist of Google Cloud, said:
“I believe AI and its benefits have no borders. Whether a breakthrough occurs in Silicon Valley, Beijing or anywhere else, it has the potential to make everyone’s life better for the entire world. As an AI first company, this is an important part of our collective mission. And we want to work with the best AI talent, wherever that talent is, to achieve it.”
The research centre will focus on basic AI research, and will consist of a team in Beijing, who will be supported by Google China’s engineering teams.
Google’s search engine and its Gmail are banned in China. However, the country has 730 million internet users, making the market too large to ignore.
Google is not the only tech giant facing restrictions in China. Facebook is also banned, while Apple’ App Store has been subject to censorship. In order to comply with government requests, Apple removed many popular messaging and virtual private network (VPN) apps from its App Store in China earlier on this year.
China has recently announced plans to develop artificial intelligence, and wants to catch up with the US. However, human rights groups are concerned by China’s use of artificial intelligence to monitor its own citizens.
A Deal Looks Likely for Disney’s Fox Takeover
Disney is on the cusp of confirming a deal to buy most of 21st Century Fox in a $60bn deal, reports claim. The sale would see Disney acquire 20th Century Fox film studios as well as Sky and Star satellite broadcasts in the UK, Asia and Europe, according to the BBC.
21st Century Fox would retain broadcasting network Fox News and Fox Sports 1. While both would remain independent initially, they “could consider a merger later with the Murdochs’ publishing company, News Corp.,” reported Bloomberg’s David Hellier and Anousha Sakoui.
Fox CEO James Murdoch could potentially be offered a senior position at Disney once the deal is done.
Why It’s Important
Fox has reassessed its place in the current media landscape and decided that to in order to be successful it would need to scale up. Disney has the scale that Fox lacks. By consolidating their efforts around news and sports, Fox will be able to play an important role in the media industry.
On the other hand, Disney’s acquisition will extend the company’s reach. Plans to roll out a new Disney streaming service could benefit from the increased international exposure, where there appears to be the most growth.
Disney would also acquire Fox’s streaming service Hulu, opening new opportunities for Disney to compete with the likes of Netflix and Amazon Prime Video.
ExxonMobil under Shareholder Pressure
The world’s largest oil group has agreed to publish the impact of climate policies on its bottom line.
In recent years, shareholders of the world’s largest oil and gas conglomerates have been pushing companies to publish analysis of the threat they face from climate change and the threat of green policies. In a regulatory filing, Exxon announced that it would change how it reports its results to include a paper on how climate policies are hurting its business. The proposal was backed by around 60% of Exxon’s shareholders back in May, which was led by the New York state employees’ retirement fund. The move follows Exxon’s gradual shift towards addressing climate change; in the 90s, the group campaigned against the Kyoto protocol but has since committed to reducing emissions.
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