Stocks’ Details 

Gilead Sciences, Inc.

GILD Updates FY20 Outlook: Gilead Sciences, Inc. (NASDAQ: GILD) is engaged in the development of drugs for the medication of human immunodeficiency virus (HIV), hematology or oncology illnesses, liver diseases, & respiratory disorders. Recently, the company has updated its FY20 guidance with an uptick revision in operating income and diluted EPS.

GILD Collaborates with Oxford BioTherapeutics: On January 6, 2021, the Kite, a GILD company, and Oxford BioTherapeutics Ltd. inked a research partnership to assess five novel targets for a number of hematologic and solid tumor symptoms.

Gilead (GILD) to Buy MYR GmbH: On December 10, 2020, the company announced that it would buy MYR GmbH for a purchase consideration of €1.15 billion in cash, which will be paid upon closing the transaction. Further, post-completion, the company will also pay a potential future milestone fee of up to €300 million. The purchase will add hepatitis delta virus (HDV) therapy Hepcludex (bulevirtide) to GILD’s portfolio.

3QFY20 Key Highlights: During the quarter, the company reported earnings of $2.11 per share, up from $1.64 per share reported in the year-ago period. During the quarter, total revenues stood at $6.6 billion, up 17% year over year, owing to incremental sales from Veklury. Adjusted product gross margin in 3QFY20 came in at 86.5%, compared with 86.1% reported in 3QFY19. Research & development (R&D) expenses increased from $1.02 billion to $1.15 billion in 3QFY20.

3QFY20 Key Highlights (Source: Company Reports)

Outlook: For FY20, the company now expects product sales to be in the range of $24.3-$24.35 billion (previously $23-$23.5 billion). Non-GAAP product gross margins are now expected to be in the range of ~86.5% (previously 86% to 87%). Operating income is now expected to be in the ambit of $11.65 billion to $11.75 billion, up from the prior view of $10.7 billion to $11.2 billion. Diluted earnings per share are now expected to be in the ambit of $6.98-$7.08 (previously $6.25-$6.60). 

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock of GILD closed at $62.510 with a market capitalization of ~$78.36 billion. The stock made a 52-week low and high of $56.56 and $85.97, respectively, and is currently trading below the average of its 52-week trading range, offering a decent opportunity for accumulation.  At the closing price of $62.51, current yield for the stock stands at 4.31%. The stock has given negative returns of ~3.2% and 3.9% in the last three months and one year, respectively. On the technical analysis front, the stock has a support level of ~$59.5 and resistance of ~$68.2. Considering the above factors, we have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price of an upside of lower double-digit (in % terms). For the purpose, we have taken peers like Bristol-Myers Squibb Co (NYSE: BMY), Merck & Co Inc (NYSE: MRK) and Biogen Inc (NASDAQ: BIIB). Hence, considering the current trading level, improved outlook, Q3FY20 results and buyout synergies, we recommend a “Buy” rating on the stock at the closing price of $62.51, down 0.84% on 11 January 2021.

Vertex Pharmaceuticals Incorporated

VRTX’s New Drug Gets Accepted for Priority Review: Vertex Pharmaceuticals Incorporated (NASDAQ: VRTX) is mainly focused on the innovation, development, and commercialization of small molecule drugs targeting severe infections. On December 28, 2020, the company stated that it received approval from Health Canada for the Priority Review of its New Drug Submission for TRIKAFTA®. The latest drug will help in the treatment of cystic fibrosis (CF) in people ages 12 years and older.

VRTX Inks Deal with Skyhawk: Recently, VRTX announced that it has inked research and licensing deal with Skyhawk Therapeutics, Inc. Both the companies are seeking to discover and develop new small molecules that modulate ribonucleic acid (“RNA”) splicing for the medication of severe diseases. Per the deal, VRTX will pay an upfront payment of $40 million to Skyhawk.

Q3FY20 Key Financial Highlights: During the quarter, the company reported adjusted earnings per share of $2.64, which skyrocketed 115% from the prior corresponding period. Higher bottom-line growth was on the back of robust cystic fibrosis (“CF”) product revenues. Revenues in 3QFY20 came in at $1.54 billion, up 62% on pcp. Adjusted research and development (R&D) expenses stood at $350 million, up 20.7% year over year. The company exited the quarter with a cash balance of $6.2 billion million.

Key Financial Highlights (Source: Company Reports)

FY20 Outlook: The company raised its FY20 revenue outlook. It now expects revenues from CF products to be in the ambit of $6.0-$6.2 billion (up from prior guidance of $5.7-$5.9 billion).

Stock Recommendation: The stock of VRTX closed at $234.64 with a market capitalization of ~$61.02 billion. The stock made a 52-week low and high of $197.47 and $306.08, respectively, and is currently trading below its 52-weeks trading range. On the technical analysis front, the stock of the company has a support level of ~$221.2 and a resistance level at ~$289.11. The stock has given negative returns of ~14.6% in the last three months but went up 4.7% in the last one month. The company’s debt to equity ratio stood at 0.07x in 3QFY20, as compared to the industry median of 0.00x. On the valuation front, the stock is trading at an EV/Sales multiple of 9.1x as compared to the industry median of 27.7x on TTM (Trailing Twelve Months) basis. Considering the current trading levels, robust results for 3QFY20, resilient business, modest industry outlook and growth prospects, we recommend a “Buy” rating on the stock at the closing price of $234.64, down by 1% on 11 January 2021. 

Frontline Ltd.

A Look at Q3FY20 Operational Highlights: Frontline Ltd. (NYSE: FRO) is involved mainly in the ownership and operation of oil tankers and product tankers. FRO announced its quarterly results, wherein the business reported total operating revenues at $247.4 million as compared to $187.64 million in the previous corresponding period. Net operating income came in at $70.95 million as compared to $12.11 million in Q3FY19. The company reported a net income of $57.11 million as compared to a loss of $9.95 million in Q3FY19. Cash and cash equivalent were reported at $194.1 million while total current assets were reported at $404.4 million as on 30 September 2020. Total long-term debt amounted to $1.94 billion at the end of 3QFY20.

Q3FY20 Key Highlights (Source: Company Reports)

What to Expect: The company remains optimistic in the long-term owing to its modern fuel-efficient fleet, cost cost-effective organization and strong financial position. The company also predicts to deliver robust performance as the global recovery continues. Post the conclusion of two term-loan facilities with total payments of $324.4 million due in April 2021 and in June 2021, the company has no material maturities until 2023.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

P/E Based Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock of FRO closed at $6.37 with a market capitalization of ~$1.26 billion. The stock is currently quoting towards the lower band of its 52-weeks’ trading range of $5.28 and $13.33. The stock has generated negative returns of 9.6% and 11.4% in the last one month and three months, respectively.  On the technical analysis front, the stock of the company has a support level of ~$5.2 and a resistance level at ~$8.5. The tanker market looks encouraging, and the company remains focused to increase its spot exposure throughout the year. Considering the above factors, we have valued the stock using the P/E multiple based illustrative relative valuation method and arrived at a target price of an upside of low double-digit (in % terms). For the purpose, we have taken peers like Scorpio Tankers Inc (NYSE: STNG), DHT Holdings Inc (NYSE: DHT) and Ardmore Shipping Corp (NYSE: ASC). Considering the aforesaid facts, valuation, decent outlook, and gradual increase in demand for transportation in the wake of the re-opening of economic activities, we recommend a “Buy” rating on the stock at the closing price of $6.37, down by 3.48% on 11 January 2021.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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