Biopharmaceuticals stock Gilead Sciences (GILD 2.69%) jumped 2.5% through 12:30 p.m. ET Friday after Needham & Co. upgraded the shares to a buy rating and slapped a $133 price target on the $116 stock.
Key to the analyst's analysis is Gilead's new Yeztugo prescription medication for pre-exposure prevention of HIV-1.
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What Needham says about Gilead
Citing a survey of physicians, Needham reports in a note covered on The Fly this morning that the market for "pre-exposure prophylaxis" against HIV is likely to increase 49% in size over the next five years. Within this market, physicians on average expect Yeztugo to grab a 38% market share.
But here's the thing: Most analyst forecasts do not factor into their Gilead valuations Yeztugo's share gains in the growing HIV prophylaxis market. And with Needham believing Yeztugo will become a "a multi-billion dollar contributor to sales growth over the next several years," the analyst feels investors should buy Gilead stock now, before more analysts catch on to the opportunity.
Is Gilead stock a sell?
Just how big of an opportunity is this? Well, consider Gilead as it stands today. Valued just over $141 billion, Gilead stock sells for just 23.5 times trailing earnings (i.e. without growth from Yeztugo).
Most analysts expect Gilead to grow profits nearly 23% annually over the next five years, and the company also pays a respectable 2.8% dividend yield. I'd argue that already makes Gilead stock a good stock prospect for growth at a reasonable price. But Gilead also generates substantially more free cash flow than it reports as net income -- about $9.8 billion over the last 12 months -- which drops its price-to-free-cash-flow ratio down well below 15.
Without Yeztugo, that's already a great price. With growth from Yeztugo, Gilead stock could be a steal.
