Stock Analysis on Net
Stock Analysis on Net
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Gilead Sciences Inc. (NASDAQ:GILD)

Dividend Discount Model (DDM)

Intermediate level

Intrinsic Stock Value (Valuation Summary)

Gilead Sciences Inc., dividends per share (DPS) forecast

US$

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Year Value DPSt or Terminal value (TVt) Calculation Present value at 14.51%
0 DPS01 2.52
1 DPS1 3.19 = 2.52 × (1 + 26.57%) 2.79
2 DPS2 3.91 = 3.19 × (1 + 22.47%) 2.98
3 DPS3 4.62 = 3.91 × (1 + 18.36%) 3.08
4 DPS4 5.28 = 4.62 × (1 + 14.25%) 3.07
5 DPS5 5.82 = 5.28 × (1 + 10.15%) 2.96
5 Terminal value (TV5) 147.10 = 5.82 × (1 + 10.15%) ÷ (14.51%10.15%) 74.73
Intrinsic value of Gilead Sciences Inc.’s common stock (per share) $89.60
Current share price $63.71

Based on: 10-K (filing date: 2020-02-25).

1 DPS0 = Sum of the last year dividends per share of Gilead Sciences Inc.’s common stock. See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.


Required Rate of Return (r)

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Assumptions
Rate of return on LT Treasury Composite1 RF 2.08%
Expected rate of return on market portfolio2 E(RM) 12.37%
Systematic risk of Gilead Sciences Inc.’s common stock βGILD 1.21
 
Required rate of return on Gilead Sciences Inc.’s common stock3 rGILD 14.51%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rGILD = RF + βGILD [E(RM) – RF]
= 2.08% + 1.21 [12.37%2.08%]
= 14.51%


Dividend Growth Rate (g)

Dividend growth rate (g) implied by PRAT model

Gilead Sciences Inc., PRAT model

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Average Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015
Selected Financial Data (US$ in millions)
Dividends declared 3,239  2,986  2,742  2,465  1,890 
Net income attributable to Gilead 5,386  5,455  4,628  13,501  18,108 
Product sales 22,119  21,677  25,662  29,953  32,151 
Total assets 61,627  63,675  70,283  56,977  51,839 
Total Gilead stockholders’ equity 22,525  21,387  20,442  18,887  18,534 
Financial Ratios
Retention rate1 0.40 0.45 0.41 0.82 0.90
Profit margin2 24.35% 25.16% 18.03% 45.07% 56.32%
Asset turnover3 0.36 0.34 0.37 0.53 0.62
Financial leverage4 2.74 2.98 3.44 3.02 2.80
Averages
Retention rate 0.59
Profit margin 33.79%
Asset turnover 0.44
Financial leverage 2.99
 
Dividend growth rate (g)5 26.57%

Based on: 10-K (filing date: 2020-02-25), 10-K (filing date: 2019-02-26), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-27), 10-K (filing date: 2016-02-24).

2019 Calculations

1 Retention rate = (Net income attributable to Gilead – Dividends declared) ÷ Net income attributable to Gilead
= (5,3863,239) ÷ 5,386
= 0.40

2 Profit margin = 100 × Net income attributable to Gilead ÷ Product sales
= 100 × 5,386 ÷ 22,119
= 24.35%

3 Asset turnover = Product sales ÷ Total assets
= 22,119 ÷ 61,627
= 0.36

4 Financial leverage = Total assets ÷ Total Gilead stockholders’ equity
= 61,627 ÷ 22,525
= 2.74

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.59 × 33.79% × 0.44 × 2.99
= 26.57%


Dividend growth rate (g) implied by Gordon growth model

g = 100 × (P0 × rD0) ÷ (P0 + D0)
= 100 × ($63.71 × 14.51%$2.52) ÷ ($63.71 + $2.52)
= 10.15%

where:
P0 = current price of share of Gilead Sciences Inc.’s common stock
D0 = the last year dividends per share of Gilead Sciences Inc.’s common stock
r = required rate of return on Gilead Sciences Inc.’s common stock


Dividend growth rate (g) forecast

Gilead Sciences Inc., H-model

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Year Value gt
1 g1 26.57%
2 g2 22.47%
3 g3 18.36%
4 g4 14.25%
5 and thereafter g5 10.15%

where:
g1 is implied by PRAT model
g5 is implied by Gordon growth model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 26.57% + (10.15%26.57%) × (2 – 1) ÷ (5 – 1)
= 22.47%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 26.57% + (10.15%26.57%) × (3 – 1) ÷ (5 – 1)
= 18.36%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 26.57% + (10.15%26.57%) × (4 – 1) ÷ (5 – 1)
= 14.25%