While Gilead posted surprisingly good results for 2016, the very low 2017 guidance sent shares down after hours and on the following day. My very simple DCF model, assuming flat HIV and 30% annual decline of HCV for the next 7 years still yields $120 per share value with, I believe, conservative assumptions. Assuming no R&D spending and severe decline in each line of business (15% HIV and 40% HCV) the shares would still be worth $44, compared to $65.6 price today. I still see more potential for reward than downside risk in Gilead, at current share price.
The poor guidance (perhaps too conservative?) lowered my expectations of firm value, but it is still above current share price. Contrary to many others I do not blame management for executing share buyback for prices higher than current price. But what confuses me a bit is the fact that they are now deemphasizing buybacks in the earnings call. I would rather hope that they double down on them, while still leaving room for sensible M&A and R&D. But I can live with shareholder returns in the form of dividends, and I expect that positive news (M&A, slower decline) will improve sentiment in the stock.
In the meantime, I meaningfully added to my position, with ~$70 average cost.
The poor guidance (perhaps too conservative?) lowered my expectations of firm value, but it is still above current share price. Contrary to many others I do not blame management for executing share buyback for prices higher than current price. But what confuses me a bit is the fact that they are now deemphasizing buybacks in the earnings call. I would rather hope that they double down on them, while still leaving room for sensible M&A and R&D. But I can live with shareholder returns in the form of dividends, and I expect that positive news (M&A, slower decline) will improve sentiment in the stock.
In the meantime, I meaningfully added to my position, with ~$70 average cost.
No comments:
Post a Comment