We can compare Gilead to GlaxoSmithKline plc (NYSE:GSK), Pfizer Inc. (NYSE:PFE), Abbott Laboratories (NYSE:ABT), and Bristol-Myers Squibb Co. (NYSE:BMY). The trailing earnings multiples at these peers are generally at 15 or lower, which make for considerable discounts to where Gilead trades. The exception is Bristol-Myers Squibb, which trades at 32 times trailing earnings. On a forward basis analysts expect it to grow a bit more quickly than Gilead, pulling the two stocks roughly even in terms of forward earnings multiples. We’d also note that earnings growth is expected to be lower at the other companies- and even negative at Abbott- so in terms of 2014 the valuation range narrows considerably (though of course that is dependent on Gilead hitting its earnings targets for the next couple years). Abbott is the only one of these four peers to report an increase in revenue in its most recent quarter compared to the same period in the previous year, and even there net income was down over 30%.
Certainly Gilead has an advantage over these other companies in that its business is stable, let alone growing nicely. The valuation is high, and certainly does depend on continued earnings growth at least at a similar level to what the company has been doing, and so even with the large insider purchase we would be hesitant to buy here. Perhaps it might be wise to look for specific drugs that should drive earnings growth or come back to the stock after the next quarterly report.
Disclosure: I own no shares of any stocks mentioned in this article.