- 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:
|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.
|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.