Stock Analysis on Net
Stock Analysis on Net

Gilead Sciences Inc. (NASDAQ:GILD)

Present Value of Free Cash Flow to the Firm (FCFF)

Microsoft Excel

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 the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)

Gilead Sciences Inc., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 5.64%
01 FCFF0 8,150
1 FCFF1 5,058 = 8,150 × (1 + -37.94%) 4,788
2 FCFF2 3,596 = 5,058 × (1 + -28.91%) 3,222
3 FCFF3 2,881 = 3,596 × (1 + -19.88%) 2,443
4 FCFF4 2,568 = 2,881 × (1 + -10.85%) 2,062
5 FCFF5 2,522 = 2,568 × (1 + -1.82%) 1,916
5 Terminal value (TV5) 33,160 = 2,522 × (1 + -1.82%) ÷ (5.64% – -1.82%) 25,200
Intrinsic value of Gilead Sciences Inc. capital 39,631
Less: Debt, net (fair value) 23,797
Intrinsic value of Gilead Sciences Inc. common stock 15,834
 
Intrinsic value of Gilead Sciences Inc. common stock (per share) $12.71
Current share price $66.93

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

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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.

Weighted Average Cost of Capital (WACC)

Gilead Sciences Inc., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 83,380 0.78 6.54%
Debt, net (fair value) 23,797 0.22 2.50% = 3.91% × (1 – 36.10%)

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

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 1,245,774,616 × $66.93
= $83,379,695,048.88

   Debt, net (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (18.20% + 21.50% + 25.10% + 94.70% + 21.00%) ÷ 5
= 36.10%

WACC = 5.64%

FCFF Growth Rate (g)

FCFF 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)
Interest expense 944 935 1,001 984 995
Net income attributable to Gilead 5,665 4,592 6,225 123 5,386
 
Effective income tax rate (EITR)1 18.20% 21.50% 25.10% 94.70% 21.00%
 
Interest expense, after tax2 772 734 750 52 786
Add: Dividends declared 3,814 3,725 3,618 3,464 3,239
Interest expense (after tax) and dividends 4,586 4,459 4,368 3,516 4,025
 
EBIT(1 – EITR)3 6,437 5,326 6,975 175 6,172
 
Current portion of long-term debt and other obligations, net 1,798 2,273 1,516 2,757 2,499
Long-term debt, net, excluding current portion 23,189 22,957 25,179 28,645 22,094
Total Gilead stockholders’ equity 22,833 21,240 21,069 18,202 22,525
Total capital 47,820 46,470 47,764 49,604 47,118
Financial Ratios
Retention rate (RR)4 0.29 0.16 0.37 -19.07 0.35
Return on invested capital (ROIC)5 13.46% 11.46% 14.60% 0.35% 13.10%
Averages
RR -3.58
ROIC 10.60%
 
FCFF growth rate (g)6 -37.94%

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).

1 See details »

2023 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 944 × (1 – 18.20%)
= 772

3 EBIT(1 – EITR) = Net income attributable to Gilead + Interest expense, after tax
= 5,665 + 772
= 6,437

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [6,437 – 4,586] ÷ 6,437
= 0.29

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 6,437 ÷ 47,820
= 13.46%

6 g = RR × ROIC
= -3.58 × 10.60%
= -37.94%

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (107,177 × 5.64% – 8,150) ÷ (107,177 + 8,150)
= -1.82%

where:

Total capital, fair value0 = current fair value of Gilead Sciences Inc. debt and equity (US$ in millions)
FCFF0 = the last year Gilead Sciences Inc. free cash flow to the firm (US$ in millions)
WACC = weighted average cost of Gilead Sciences Inc. capital

FCFF growth rate (g) forecast

Gilead Sciences Inc., H-model

Microsoft Excel
Year Value gt
1 g1 -37.94%
2 g2 -28.91%
3 g3 -19.88%
4 g4 -10.85%
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)
= -37.94% + (-1.82% – -37.94%) × (2 – 1) ÷ (5 – 1)
= -28.91%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= -37.94% + (-1.82% – -37.94%) × (3 – 1) ÷ (5 – 1)
= -19.88%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= -37.94% + (-1.82% – -37.94%) × (4 – 1) ÷ (5 – 1)
= -10.85%