Why Gilead's Stock Bulls Are Wrong

(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)

Gilead Sciences Inc.'s (GILD) bulls may be dreaming when it comes to their price targets that on average see the stock rising by over 21.5% to $88.75, based on data from Ycharts. The big price targets come as earnings are forecast to have a significant drop in 2018, while the stock trades at one of its highest forward PE multiple in years. (For more, see also: The Biggest Risks of Investing in Gilead Stock.)

Analysts have also become increasingly more bullish throughout the year as well, but earnings and revenue estimates haven't improved in a material way. Nor are analysts' estimates forecasting a significant jump in earnings or revenue in coming years. It means the only way shares of Gilead can rise back to their old highs, would be through multiple expansion, but that may be because the stock is already expensive. 

GILD Price Target data by YCharts

Analysts have been steadily increasing their average price target on the stock since the start of the year, to $88.75, up by 3.5% from $85.73, using data from Ycharts. The stock would need to rise by nearly 21.6% from its current price around $73. Meanwhile the number of analysts rating the shares a "buy" or "outperform," has jumped to 62% from 52% at the start of the year, while the number rating it a "hold" has dropped to 38% from 48%. (For more, see also: Gilead Shares Are Just Too Expensive.)

Analysts are looking for earnings to drop by over 25% to $1.66 when the company reports first-quarter earnings on May 2, while revenue is forecast to fall by nearly 17% to $5.404 billion. The outlook for the full-year isn't much better, with earnings expected to drop by almost 27% to $6.47 per share, while revenue is seen falling by nearly 18.5% to $21.29 billion. To make matters even worse, analysts have been cutting their full-year outlook for the company as well. It has to make one wonder why the average price target has been rising, and analysts have become more bullish. 

GILD EPS Estimates for Current Fiscal Year data by YCharts

Even with shares of Gilead trading nearly 18% off their 2018 high, the stock is trading at over 11 times 2019 earnings estimates. At that level, the stock is trading at its highest one-year forward earnings multiple since 2015, making shares of the stock not even a bargain at current levels. 

GILD data by YCharts

To this point, the optimism for a significant rise in Gilead seems more like a fantasy, than reality. But the quarterly report on May 2 could change all of that for better or for worse. 

Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the founder of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of two to three years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.Upon request, the advisor will provide a list of all recommendation made during the past twelve months. Past performance is not indicative of future performance.