- History of maintaining healthy margins, and hence:
- Very good return on Invested capital and return on Equity
- Chance to accumulate at relatively cheap valuation
There has been a lot of discussion on Gilead since the Kite acquisition announcement. So I decided to go and check the performance history of the company and am very pleased to share the results.
Gilead is a specialty pharmaceutical company that makes products targeting diseases like HIV, liver diseases, Hepatitis C etc. Recently they announced takeover of KITE, which is working on a revolutionary cancer cure.
Gilead has been operating at very healthy margins for the last ten years, numbers below for your reference:
| Ratios | 2007-12 | 2008-12 | 2009-12 | 2010-12 | 2011-12 | 2012-12 | 2013-12 | 2014-12 | 2015-12 | 2016-12 | TTM |
| Gross margin % | 81.82 | 78.88 | 77.25 | 76.49 | 74.67 | 74.52 | 74.48 | 84.78 | 87.73 | 85.98 | 84.94 |
| Operating margin % | 51.18 | 50.21 | 50.34 | 49.84 | 45.20 | 41.33 | 40.39 | 61.33 | 68.00 | 58.02 | 57.84 |
| Net margin % | 35.37 | 36.41 | 36.86 | 35.59 | 32.46 | 26.91 | 27.37 | 48.44 | 55.00 | 42.97 | 41.07 |
| R&D requirement % | 13.97 | 13.53 | 13.41 | 13.50 | 14.66 | 18.14 | 18.93 | 11.47 | 9.23 | 16.78 | 14.56 |
What the above numbers indicate is that the management has been doing a good job at recognizing opportunities in the market for income generation (eg. Pharmasset acquisition for Hep C drug in 2012).
Below are the numbers for Return on Equity and Return on Capital – impressive, right? The company has been buying back shares since it’s operation, almost 31% reduction in diluted shares in last 10years, hence increasing the value for the shareholders. The net income grew at CAGR of 25% for last 9 years while the EPS grew by 31% during the same period.
| Ratios | 2007-12 | 2008-12 | 2009-12 | 2010-12 | 2011-12 | 2012-12 | 2013-12 | 2014-12 | 2015-12 | 2016-12 | TTM |
| ROE % | 43.24 | 46.80 | 40.58 | 48.24 | 40.39 | 28.05 | 26.97 | 78.15 | 96.86 | 69.15 | 61.91 |
| ROIC % | 31.35 | 35.24 | 33.93 | 29.92 | 18.97 | 14.89 | 17.03 | 43.32 | 44.10 | 28.87 | 25.85 |
| Diluted shares (mm) | 1929.00 | 1918.00 | 1868.00 | 1747.00 | 1580.00 | 1583.00 | 1695.00 | 1647.00 | 1521.00 | 1358.00 | 1326.00 |
Gilead at current P/E of ~9 is very attractive and can be accumulated at dips for long-term holding. Seeing the performance above, I believe the management will be able to find opportunities for growth via fruitful acquisitions.