Gilead Sciences, Inc. (NASDAQ:GILD) have dropped 40% since July 2015. Some shareholders have sold the biotech stock and moved on. It’s never an encouraging sight when a stock holding keeps going down continuously. At least, it is the same case with investors who are holding GILD stock.
It doesn’t benefit that experts have been reducing the price target on Gilead stock. Remarkably, though, some still rate the company as undervalued, which imply the stock price is declining faster than its earnings drop rate and that the firm may be worth investing.
In the biotech stock picks, Gilead Sciences has always managed to score a place. The firm found a treatment for hepatitis C instead of advancing a drug that cure but doesn’t treats patients. In a sense, it remains a victim of its success. The firm witnessed tremendous earnings growth in FY2014 and FY2015. Practically, high growth can’t stay forever. The falling earnings of Gilead are projected to continue its decline for at least this year.
If the 2018 EPS projection of $7.75 materializes, it will be a CAGR of 30.6% in 5 years from FY2013 to FY2018, which will prove to an amazing growth rate that’s not easily seen in such a big firm. Using that same rate of EPS, the company would be trading at a multiple of around 8.9, which seems an attractive buy for a firm that maintains its profitability.
In the meantime, the company is returning cash to its shareholders. It released a dividend in FY2015 and increased it by 9.3% in FY2016. In Q1, it increased it by 10.6%. The yearly payout depending on the quarterly payout is $2.08 a share, which is interesting for a yield of 3% at the latest share price of around $70 a share. Even if Gilead increased its payout by 10% again in coming year, its payout ratio in FY2018 would be projected to be less than 30%.