A Major Catalyst For A Strong Stock
Gilead Lifesciences (GILD) has been getting a lot of attention the last couple of weeks because of remdesivir. Remdesivir, an anti-viral medication, has been and still is the leading candidate for treating the COVID-19 pandemic. The news, both good and bad, has been responsible for some wicked price swings that has share prices trading at a two-year high. Now, with the FDA’s emergency approval in the bag, the question arises. Is it time to buy Gilead Life Sciences?
What This Means For Gilead
Approval for the drug had become a foregone conclusion following the release of two independent studies. The studies, on patients suffering from severe COVID-19, showed a clear benefit with as little as five doses. Remdesivir is the only drug to have done so to date although there are dozens more in the wings.
"It is reasonable to believe that the known and potential benefits of [remdesivir] outweigh the known and potential risks of the drug for the treatment of patients hospitalized with severe COVID-19."
The announcement of remdesivir’s approval was made at the White House along with Gilead CEO Dan O’Day. During the event, Vice President Mike Pence said Gilead will begin distributing 1 million doses as early as Monday (today) and CEO O’Day backed up the VPs statement. Later, during an interview, O’Day says Gilead would produce 140,000 new rounds by the end of the month and a million by the end of the year.
The Problem For Gilead Bulls
The problem is that Gilead is donating the first lot of drugs to the government in order to get treatment out as soon as possible. What this means for Gilead is the approval won’t be driving revenue or earnings gains, at least not yet.
Gilead CEO Dan O’Day
“We’ve donated the entire supply that we have within our supply chain and we did that because we acknowledge and recognize the human suffering, the human need here, and want to make sure nothing gets in the way of this getting to patients,”
All that said, the company is well-positioned for 2020 without remdesivir, if not positioned for growth. The analysts are expecting a slight drop in revenue and earnings this year due to the pandemic. The consensus calls for a 0.8% drop on the top line and 5% on the bottom but the outlook for next year is a return to growth.
The upshot is that, If remdesivir proves its worth as a COVID-19 treatment, the consensus is way too low. The risk for investors now is the drug won’t get final approval. If not, Gilead will be left in the cold with medicine it can’t sell. If you are looking for the right pharma-based stock to ride out the pandemic look to AbbVie (ABBV) and Abbot for growth(ABT).
The Dividend, It’s A Good One
Regardless of Gilead’s outlook for growth or the expected final-approval of remdesivir the dividend is a good one. The yield at today’s share prices is close to 3.5% and the distribution is well-covered. The payout ratio based on this year’s consensus is an easily-managed 43%. That fact, coupled with the company’s cash position and low debt-load ensure dividend safety.
Gilead has only been paying a dividend for five years but in that time has increased the distribution every year. While no guarantee of future increases, the history and distribution safety at least suggest another increase is possible If Gilead does increase the dividend again this year it will likely come during the December 2020 reporting cycle (calendar 3rd quarter earnings).
The Technical Outlook: Bullish…. But
The technical outlook for Gilead is bullish but take that with a grain of salt. The news around remdesivir has been driving volatility and that is not likely to change very soon. While the near-term trend is up, the indicators are still wishy-washy about it and the price action is approaching potentially strong resistance. Resistance is at the $85 level and marks a two-year high; if it is surpassed I would be a buyer of this stock. Until then, I am leery of the impact of the remdesivir news and see a possibility that price action will pull back to $77 or lower.
12 Stocks Corporate Insiders are Abandoning
An insider trade occurs when a corporate executive (such as a CEO, CFO or COO) that has non-public information about a company buys or sells shares of that company's stock. Company insiders are required by law to regularly report their stock purchases and sales to the SEC.
Tracking a company's insider trades is a metric that can be used to identify the direction that the company's executives believes that the company is headed. If a number of insiders sell shares of their company, they may believe that the company will have weak future earnings and that the share price will decline in the near future.
For example, if Microsoft's CEO, CFO and COO all recently sold shares of Microsoft stock, that would be an indication that there could be unreported news that may negatively effect Microsoft's stock price in the near future.
This slideshow lists the 12 companies that have had the highest levels of insider buying within the last 180 days.
View the "12 Stocks Corporate Insiders are Abandoning".