Tuesday, June 17, 2014

My Gilead (GILD) Whisper: $180 per share.

I would not say it is a sure thing, but when I look at Gilead Sciences (GILD), which lately has been hovering around $80 per share, I think it will go to $180 per share by about a year from now.

I'm not going to write a Seeking Alpha article to that effect (my latest on Gilead was: Gilead Down On Merck-Idenix Deal, But Little To Fear on June 9), but the reasoning is fairly simple.

Gilead's Q1 non-GAAP earnings per share were $1.48, a 169% sequential jump and 210 jump from year-earlier. This was a result of the first full quarter of sales of Sovaldi, the new cure for Hepatitis C.

While q/q fluctuations can be expected, I expect a base EPS of $1.50 per share per quarter going forward, and likely trending above that as we head into 2015.

Which means at the end of 2014 trailing non-GAAP EPS will be in the vicinity of $3.00.

By then investors, including big institutional investors, should realize that the ride is not over, that because of new therapies coming to market, and international expansion of existing therapies, growth will continue at a good (if difficult to predict exactly yet) rate.

Which means that GILD should command a P/E premium over slower-growing stock. To me, rule of thumb, that would be a P/E of 30.

30 x $6 = $180.

Of course, non-GAAP EPS will be a bit lower, and you can get very different numbers by projecting different P/Es.

I am at my portfolio limit in GILD, and if it does go up that much, I will be "forced" to sell by my portfolio rules that limit the % I can hold of any one stock. Which is great, because I have an eye on several much smaller biotech stocks that I would like to invest in now, because they may be great in 3 to 5 years.

But keep diversified, because all stock investments involve risks, including unknown unknowns.

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