Stock Analysis on Net
Stock Analysis on Net

Gilead Sciences Inc. (NASDAQ:GILD)

Present Value of Free Cash Flow to Equity (FCFE)

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In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to equity (FCFE) is generally described as cash flows available to the equity holder after payments to debt holders and after allowing for expenditures to maintain the company asset base.

Intrinsic Stock Value (Valuation Summary)

Gilead Sciences Inc., free cash flow to equity (FCFE) forecast

US$ in millions, except per share data

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Year Value FCFEt or Terminal value (TVt) Calculation Present value at 6.58%
01 FCFE0 7,151
1 FCFE1 -575 = 7,151 × (1 + -108.04%) -539
2 FCFE2 -106 = -575 × (1 + -81.49%) -94
3 FCFE3 -48 = -106 × (1 + -54.93%) -40
4 FCFE4 -34 = -48 × (1 + -28.38%) -27
5 FCFE5 -34 = -34 × (1 + -1.82%) -25
5 Terminal value (TV5) -394 = -34 × (1 + -1.82%) ÷ (6.58% – -1.82%) -287
Intrinsic value of Gilead Sciences Inc. common stock -1,011
 
Intrinsic value of Gilead Sciences Inc. common stock (per share) $-0.81
Current share price $67.08

Based on: 10-K (reporting date: 2023-12-31).

1 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 4.86%
Expected rate of return on market portfolio2 E(RM) 13.54%
Systematic risk of Gilead Sciences Inc. common stock βGILD 0.20
 
Required rate of return on Gilead Sciences Inc. common stock3 rGILD 6.58%

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]
= 4.86% + 0.20 [13.54% – 4.86%]
= 6.58%

FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Gilead Sciences Inc., PRAT model

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Average Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Selected Financial Data (US$ in millions)
Dividends declared 3,814 3,725 3,618 3,464 3,239
Net income attributable to Gilead 5,665 4,592 6,225 123 5,386
Product sales 26,934 26,982 27,008 24,355 22,119
Total assets 62,125 63,171 67,952 68,407 61,627
Total Gilead stockholders’ equity 22,833 21,240 21,069 18,202 22,525
Financial Ratios
Retention rate1 0.33 0.19 0.42 -27.16 0.40
Profit margin2 21.03% 17.02% 23.05% 0.51% 24.35%
Asset turnover3 0.43 0.43 0.40 0.36 0.36
Financial leverage4 2.72 2.97 3.23 3.76 2.74
Averages
Retention rate -5.17
Profit margin 17.19%
Asset turnover 0.39
Financial leverage 3.08
 
FCFE growth rate (g)5 -108.04%

Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).

2023 Calculations

1 Retention rate = (Net income attributable to Gilead – Dividends declared) ÷ Net income attributable to Gilead
= (5,665 – 3,814) ÷ 5,665
= 0.33

2 Profit margin = 100 × Net income attributable to Gilead ÷ Product sales
= 100 × 5,665 ÷ 26,934
= 21.03%

3 Asset turnover = Product sales ÷ Total assets
= 26,934 ÷ 62,125
= 0.43

4 Financial leverage = Total assets ÷ Total Gilead stockholders’ equity
= 62,125 ÷ 22,833
= 2.72

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= -5.17 × 17.19% × 0.39 × 3.08
= -108.04%

FCFE growth rate (g) implied by single-stage model

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (83,567 × 6.58% – 7,151) ÷ (83,567 + 7,151)
= -1.82%

where:
Equity market value0 = current market value of Gilead Sciences Inc. common stock (US$ in millions)
FCFE0 = the last year Gilead Sciences Inc. free cash flow to equity (US$ in millions)
r = required rate of return on Gilead Sciences Inc. common stock

FCFE growth rate (g) forecast

Gilead Sciences Inc., H-model

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Year Value gt
1 g1 -108.04%
2 g2 -81.49%
3 g3 -54.93%
4 g4 -28.38%
5 and thereafter g5 -1.82%

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

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= -108.04% + (-1.82% – -108.04%) × (2 – 1) ÷ (5 – 1)
= -81.49%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= -108.04% + (-1.82% – -108.04%) × (3 – 1) ÷ (5 – 1)
= -54.93%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= -108.04% + (-1.82% – -108.04%) × (4 – 1) ÷ (5 – 1)
= -28.38%