Gilead Sciences (GILD)

Biopharmaceutical company Gilead Sciences (NASDAQ:GILD) missed Wall Street’s revenue expectations in Q1 CY2025, with sales flat year on year at $6.67 billion. The company’s full-year revenue guidance of $28.4 billion at the midpoint came in 1.1% below analysts’ estimates. Its non-GAAP profit of $1.81 per share was 2.1% above analysts’ consensus estimates.

Company Overview

From its groundbreaking work in developing the first single-tablet regimens for HIV treatment, Gilead Sciences (NASDAQ:GILD) develops and markets innovative medicines for life-threatening diseases including HIV, viral hepatitis, COVID-19, and cancer.

Over the next few years, therapeutic companies, which develop a wide variety of treatments for diseases and disorders, face strong tailwinds from advancements in precision medicine (including the use of AI to improve hit rates) and growing demand for treatments targeting rare diseases. However, headwinds such as rising scrutiny over drug pricing, regulatory unknowns, and competition from larger, more resourced pharmaceutical companies could weigh on growth.

Gilead's competitors include major pharmaceutical companies such as Merck (NYSE:MRK), Johnson & Johnson (NYSE:JNJ), and GlaxoSmithKline (NYSE:GSK) in the HIV space; AbbVie (NYSE:ABBV) in hepatitis C; and Bristol Myers Squibb (NYSE:BMY), Novartis (NYSE:NVS), and Roche (OTCQX:RHHBY) in oncology.

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With $28.74 billion in revenue over the past 12 months, Gilead Sciences sports economies of scale. This is important as it gives the company more leverage in a heavily regulated, competitive environment that is complex and resource-intensive.

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Unfortunately, Gilead Sciences’s 4.8% annualized revenue growth over the last five years was mediocre. This fell short of our benchmark for the healthcare sector and is a tough starting point for our analysis.

Long-term growth is the most important, but within healthcare, a half-decade historical view may miss new innovations or demand cycles. Gilead Sciences’s recent performance shows its demand has slowed as its annualized revenue growth of 3.1% over the last two years was below its five-year trend.

We can better understand the company’s revenue dynamics by analyzing its most important segment, HIV. Over the last two years, Gilead Sciences’s HIV revenue averaged 1.3% year-on-year growth. This segment has lagged the company’s overall sales.

This quarter, Gilead Sciences missed Wall Street’s estimates and reported a rather uninspiring 0.3% year-on-year revenue decline, generating $6.67 billion of revenue.

Looking ahead, sell-side analysts expect revenue to remain flat over the next 12 months, a slight deceleration versus the last two years. This projection doesn't excite us and suggests its products and services will see some demand headwinds.

Gilead Sciences has been a well-oiled machine over the last five years. It demonstrated elite profitability for a healthcare business, boasting an average adjusted operating margin of 36.4%.

Looking at the trend in its profitability, Gilead Sciences’s adjusted operating margin rose by 17.8 percentage points over the last five years, as its sales growth gave it operating leverage. Zooming in on its more recent performance, we can see the company’s trajectory is intact as its margin has also increased by 3.3 percentage points on a two-year basis.

This quarter, Gilead Sciences generated an adjusted operating profit margin of 43.4%, up 60.1 percentage points year on year. This increase was a welcome development and shows it was more efficient.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Gilead Sciences’s unimpressive 4.9% annual EPS growth over the last five years aligns with its revenue performance. On the bright side, this tells us its incremental sales were profitable.

In Q1, Gilead Sciences reported EPS at $1.81, up from negative $1.32 in the same quarter last year. This print beat analysts’ estimates by 2.1%. Over the next 12 months, Wall Street expects Gilead Sciences’s full-year EPS of $7.74 to grow 5.9%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Gilead Sciences has shown terrific cash profitability, enabling it to reinvest, return capital to investors, and stay ahead of the competition while maintaining an ample cushion. The company’s free cash flow margin was among the best in the healthcare sector, averaging an eye-popping 33.2% over the last five years.

Taking a step back, we can see that Gilead Sciences’s margin dropped by 1.7 percentage points during that time. It may have ticked higher more recently, but shareholders are likely hoping for its margin to at least revert to its historical level. If the longer-term trend returns, it could signal increasing investment needs and capital intensity.

Gilead Sciences’s free cash flow clocked in at $1.65 billion in Q1, equivalent to a 24.8% margin. The company’s cash profitability regressed as it was 6.8 percentage points lower than in the same quarter last year, which isn’t ideal considering its longer-term trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although Gilead Sciences hasn’t been the highest-quality company lately, it historically found a few growth initiatives that worked. Its five-year average ROIC was 12.1%, higher than most healthcare businesses.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Uneventfully, Gilead Sciences’s ROIC has stayed the same over the last few years. Given the company’s underwhelming financial performance in other areas, we’d like to see its returns improve before recommending the stock.

Gilead Sciences reported $10.12 billion of cash and $25.52 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $14.75 billion of EBITDA over the last 12 months, we view Gilead Sciences’s 1.0× net-debt-to-EBITDA ratio as safe. We also see its $812 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

Revenue missed, but EPS beat. Looking ahead, the company's full-year revenue guidance fell slightly short of Wall Street’s estimates. Overall, this was a mixed quarter with guidance likely weighing on shares. The stock traded down 3.3% to $102.52 immediately after reporting.

Updated: May 21, 2025 at 11:51 PM EDT

Before deciding whether to buy Gilead Sciences or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

Gilead Sciences doesn’t top our investment wishlist, but we understand that it’s not a bad business. Although its revenue growth was mediocre over the last five years and analysts expect growth to slow over the next 12 months, its powerful free cash flow generation enables it to stay ahead of the competition through consistent reinvestment of profits.

Gilead Sciences’s P/E ratio based on the next 12 months is 13.1x. While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're fairly confident there are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $115.04 on the company (compared to the current share price of $107.50).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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