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Gilead Shines into Earnings

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Gilead is a name that deserves to be on every investor's radar screen.

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"Oh whatever that your days may bring
No use hiding in a corner, cause that won't change a thing If you're dancing in the doldrums One day soon it's got to stop, it's got to stop"

In The Evening - Led Zeppelin

In Through The Out Door, released on August 15th, 1979, was the last studio album by the original members of Zep. One of the cool things about this album was the album sleeve. It was made to look like a brown paper bag. However, if "painted" over with a wet brush the sleeve would become fully colored. I don't remember exactly who told me about the water and brush, but I do recall wondering who first stumbled upon this phenomena and what in the world led them to "water down" the album cover in the first place.

In terms of what is going on in the world markets, although hiding in the corner might seem to be the correct path of action, the time is now to get back into the game. Let's start with a growth name that is defensive at the same time.

Gilead Sciences (GILD), according to its website is:

...a research-based biopharmaceutical company that discovers, develops and commercializes innovative medicines in areas of unmet need. Gilead's primary areas of focus include: antiviral, cardiovascular conditions and respiratory diseases.

While many biotech names rely on one drug for the lions share of their earnings, Gilead has managed to develop quite a stable of products. Let's take a look back at the company's 3rd quarter earnings released on October 18th. Sales of Viread were $149.1 mln, sales of Truvada were $409.1 mln, sales of Atripla were $241.1 mln, sales of AmBisome were $68.5 mln and sales of Hepsera were $79.3 mln. These are 5 major drugs all under the umbrella of Gilead Sciences.

On top of that, in an industry where balance sheets can be stretched, Gilead has bucked the trend. In the first three quarters of 2007, Gilead has seen cash flow growth of 80%. This is not a one off even either, as Gilead saw similar free cash flow growth in 2004, 2005 and 2006. To amplify that point, on October 22nd, Gilead authorized $3 bln for their share repurchase plan. That plan scheduled to expire in December of 2010.

Now, Gilead is not exactly a hidden gem. Even with today's price action, the stock price is still up by about 35% since this time last year. But even with that price appreciation, Gilead should be insulated from a downturn in the consumer and any of the distress associated with the latest turbulence caused by the credit markets.

The company's role in the treatment of HIV will continue to face competition from main stream pharma, but the leadership position that Gilead enjoys should not be challenged for quite some time.

On January 7th, Gilead was upgraded to outperform from neutral at Credit Suisse and the price target raised to $54 from $45. On January 11th, UBS raised its price target on Gilead to $61 from $50. The earnings release tomorrow afternoon should lead to some more comments from analysts as well.

Gilead is scheduled to report its 4th quarter after the close tomorrow. The "Street" is looking for $0.41 EPS on $1.09 bln in revenues. At 23 times forward earnings, Gilead is smack in the middle of cheap or expensive.

However, with the leadership position GILD holds in the treatment of HIV and a balance sheet that is strong enough to allow it to authorize a sizeable stock buyback, Gilead is a name that deserves to be on every investors radar screen.
No positions in stocks mentioned.

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