Gilead Sciences (GILD 0.07%) is a top healthcare company with a market capitalization north of $100 billion. Whether you're a dividend investor or interested in growth, this is the type of investment that has something for everyone, and that can be a good fit for any portfolio. Here are six reasons why this could be a great stock to buy and hold for years.
1. It has a solid HIV business to build around
What I like a lot about Gilead is that the company has a strong, sound HIV business at its core. HIV requires ongoing treatment, and the company has some blockbusters in that area that contribute more than $1 billion in annual revenue to its operations.
Top-selling drug Biktarvy brought in $10.4 billion in sales last year, which was a year-over-year increase of 20% from 2021. Other Gilead HIV blockbusters include Descovy, Genvoya, and Odefsey, which together combined for $5.7 billion in sales last year.
Gilead could still generate more growth from the segment. Last year, the U.S. Food and Drug Administration approved its twice-yearly injectable, Sunlenca (lenacapavir), which has the potential to generate up to $1.5 billion in revenue at its peak.
2. The company's oncology business is growing well
One of the hottest growth opportunities for Gilead is in oncology, driven by cancer treatment Trodelvy. Last year, Gilead's oncology revenue rose by 71%, with Trodelvy's sales topping $680 million and rising by 79% from 2021.
Gilead is still working on approving Trodelvy for more indications (it's approved for three so far -- two related to breast cancer, and one for bladder cancer). At its peak, the drug's sales could top $4 billion, potentially making it one of the company's top products.
3. Gilead's profit margins are strong
What's encouraging about Gilead's business is that the company has been achieving some encouraging growth while maintaining an impressive gross profit margin.
GILD Gross Profit Margin (Quarterly) data by YCharts
With around 80 cents of every dollar going to cover overhead and operating expenses, that bodes well for the business' bottom line. In 2022, the company's net income of $4.6 billion was nearly 17% of revenue, totaling $27.3 billion. As Gilead's business continues to expand, that bottom line could get a whole lot larger thanks to the company's strong margins.
4. The company generates billions in free cash flow
As impressive as Gilead's margins are, what may be even more impressive is how much free cash flow it has been accumulating over the years. It brought in $8.3 billion in free cash in 2022, and that was down from $10.8 billion the year before that. Over the past four years, its free cash has totaled $35 billion.
GILD Free Cash Flow (Annual) data by YCharts
5. The share price isn't that expensive
In the past year, Gilead's stock has climbed 37%. It may look expensive for investors because at 22 times earnings, it's already trading right around the healthcare industry average. But I'd argue that with some encouraging growth prospects and strong financials, the business is above average and should command a premium. And when looking at a forward basis, the stock trades at a future earnings multiple of 11, based on analysts' expectations, versus 17 for the industry as a whole, and so a case can certainly be made that Gilead is undervalued given its growth potential.
6. Gilead pays an attractive dividend yield
A profitable company that generates billions in cash flow is the type of business you would expect to pay a dividend. At 3.6%, Gilead's yield is more than double the S&P 500 average of 1.7%. Its payout ratio may be a tad high at 80%, but it's sustainable -- and with more growth on the way, it should improve.
Gilead is a solid all-around stock to buy and hold
Gilead's financials are impressive, and they could strengthen further in the years ahead as it grows its oncology business and Sunlenca takes off. Plus, with an attractive dividend, there's plenty of incentive for investors to just hang on to the stock and wait. From a value, growth, and dividend perspective, Gilead is a stock that can be suitable for a wide range of investors.
