Gilead Sciences stock (NASDAQ: GILD) trades at $65 per share, about 11% below the level seen in December 2021. GILD stock was trading at around $62 in early June 2022, just before the Fed started increasing rates, and is still close to that level, compared to a substantial 37% gain for the S&P 500 during this period. GILD stock has been weighed down in the recent past due to falling sales of its Covid-19 treatment — Veklury.

Looking at a slightly longer term, GILD stock has seen little change, moving slightly from levels of $60 in early January 2021 to around $65 now, vs. an increase of about 40% for the S&P 500 over this roughly three-year period. Overall, the performance of GILD stock with respect to the index has been quite volatile. Returns for the stock were 25% in 2021, 18% in 2022, and -6% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that GILD underperformed the S&P in 2021 and 2023.

In fact, consistently beating the S&P 500 — in good times and bad — has been difficult over recent years for individual stocks; for heavyweights in the Health Care sector including LLY, UNH, and JNJ, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could GILD face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months — or will it see a strong jump?
Returning to the pre-inflation shock high of around $74 means that GILD stock will have to gain around 12% from here, and we think that it will materialize over time. GILD stock currently trades at 3x trailing revenues, below its last five-year average of 3.5x, and appears to have some room for growth.

Our detailed analysis of Gilead Sciences’ upside post-inflation shock captures trends in the company’s stock during the turbulent market conditions seen over 2022. It compares these trends to the stock’s performance during the 2008 recession.

• 2020 – early 2021: Increase in money supply to cushion the impact of lockdowns led to high demand for goods; producers unable to match up.
• Early 2021: Shipping snarls and worker shortages from the coronavirus pandemic continue to hurt supply.
• April 2021: Inflation rates cross 4% and increase rapidly.
• Early 2022: Energy and food prices spike due to the Russian invasion of Ukraine. Fed begins its rate hike process.
• June 2022: Inflation levels peak at 9% – the highest level in 40 years. The S&P 500 index declined more than 20% from peak levels.
• July – September 2022: Fed hikes interest rates aggressively – resulting in an initial recovery in the S&P 500 followed by another sharp decline.

• October 2022 – July 2023: Fed continues rate hike process; improving market sentiments helps S&P500 recoup some of its losses.

• Since August 2023: Fed has kept interest rates unchanged to quell fears of a recession, and it is prepared for rate cuts in 2024.

In contrast, here’s how GILD stock and the broader market performed during the 2007/2008 crisis.

Timeline of 2007-08 Crisis

• 10/1/2007: Approximate pre-crisis peak in S&P 500 index
• 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
• 3/1/2009: Approximate bottoming out of S&P 500 index
• 12/31/2009: Initial recovery to levels before accelerated decline (around 9/1/2008)

Gilead and S&P 500 Performance During 2007-08 Crisis

GILD stock declined from $25 in August 2008 (the stock’s pre-crisis peak) to $22 in March 2009 (as the markets bottomed out), implying it lost 11% of its pre-crisis value. It stayed at around $22 levels in early 2010, implying no growth between March 2009 and January 2010. The S&P 500 Index saw a decline of 51%, falling from levels of 1,540 in September 2007 (pre-crisis peak) to 757 in March 2009. It then rallied 48% between March 2009 and January 2010 to reach levels of 1,124.

Gilead’s Fundamentals Over Recent Years

Gilead Sciences’ revenue increased from $24.7 billion in 2020 to $27.1 billion in 2023, led by an uptick in its Covid-19 treatment — Veklury — along with growth in its HIV and oncology portfolio, which includes breast cancer drug Trodelvy and HIV drug Biktarvy. The company’s earnings stood at $4.50 on a per-share and reported basis in 2023, compared to the $0.10 figure in 2020.

Does Gilead Have A Sufficient Cash Cushion To Meet Its Obligations Through The Ongoing Inflation Shock?

Gilead’s total debt decreased from $31 billion in 2020 to around $25 billion now, while its cash decreased marginally from $7.4 billion to $7.3 million over the same period. The company also garnered $8 billion in cash flows from operations in 2023. Given its cash cushion, Gilead appears to be in a comfortable position to service its near-term obligations.

Conclusion

With the Fed’s efforts to tame runaway inflation rates helping market sentiments, we believe GILD stock has the potential for more gains once fears of a potential recession are allayed. While its top-line is expected to benefit from market share gains for its HIV and Oncology drugs, lower interest costs (if the Fed cuts rates) will aid its bottom-line growth. The company’s revenues are expected to remain stable at around $27.6 billion in 2024, while its adjusted earnings are expected to fall in the range of $3.45 and $3.85 per share, versus its previous estimate of $6.85 to $7.25 per share. This can be attributed to charges associated with its acquisition of CymaBay.

While GILD stock can see higher levels, it is helpful to see how Gilead Sciences’ Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

[1] Returns as of 5/8/2024
[2] Cumulative total returns since the end of 2016

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.