Intrinsic value of Gilead Sciences - GILD

Previous Close

$80.01

  Intrinsic Value

$175.53

stock screener

  Rating & Target

str. buy

+119%

  Value-price divergence*

-4%

Previous close

$80.01

 
Intrinsic value

$175.53

 
Up/down potential

+119%

 
Rating

str. buy

 
Value-price divergence*

-4%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of GILD stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 104.2

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -6.89
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  30,390
  30,998
  31,711
  32,526
  33,441
  34,454
  35,567
  36,778
  38,089
  39,502
  41,018
  42,640
  44,370
  46,213
  48,171
  50,249
  52,451
  54,782
  57,247
  59,852
  62,602
  65,504
  68,564
  71,789
  75,188
  78,767
  82,536
  86,503
  90,677
  95,069
  99,688
Variable operating expenses, $m
 
  9,917
  10,142
  10,400
  10,689
  11,010
  11,361
  11,744
  12,159
  12,605
  13,085
  13,480
  14,027
  14,610
  15,229
  15,886
  16,582
  17,319
  18,098
  18,922
  19,791
  20,709
  21,676
  22,696
  23,770
  24,902
  26,093
  27,347
  28,667
  30,055
  31,516
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  12,757
  9,917
  10,142
  10,400
  10,689
  11,010
  11,361
  11,744
  12,159
  12,605
  13,085
  13,480
  14,027
  14,610
  15,229
  15,886
  16,582
  17,319
  18,098
  18,922
  19,791
  20,709
  21,676
  22,696
  23,770
  24,902
  26,093
  27,347
  28,667
  30,055
  31,516
Operating income, $m
  17,633
  21,081
  21,568
  22,126
  22,751
  23,445
  24,205
  25,034
  25,930
  26,896
  27,933
  29,159
  30,343
  31,603
  32,942
  34,363
  35,869
  37,463
  39,149
  40,930
  42,811
  44,795
  46,888
  49,094
  51,418
  53,866
  56,443
  59,156
  62,010
  65,013
  68,172
EBITDA, $m
  18,791
  22,263
  22,775
  23,361
  24,018
  24,746
  25,545
  26,415
  27,357
  28,371
  29,460
  30,625
  31,868
  33,191
  34,598
  36,090
  37,672
  39,346
  41,116
  42,987
  44,962
  47,046
  49,244
  51,561
  54,002
  56,573
  59,280
  62,129
  65,127
  68,281
  71,598
Interest expense (income), $m
  885
  975
  1,003
  1,036
  1,074
  1,117
  1,164
  1,215
  1,272
  1,332
  1,398
  1,468
  1,543
  1,624
  1,709
  1,800
  1,896
  1,999
  2,107
  2,221
  2,342
  2,469
  2,604
  2,746
  2,896
  3,053
  3,219
  3,394
  3,578
  3,772
  3,975
Earnings before tax, $m
  17,097
  20,106
  20,565
  21,089
  21,677
  22,328
  23,042
  23,818
  24,659
  25,564
  26,535
  27,691
  28,799
  29,979
  31,233
  32,563
  33,973
  35,465
  37,042
  38,709
  40,469
  42,326
  44,284
  46,348
  48,522
  50,812
  53,224
  55,761
  58,432
  61,242
  64,197
Tax expense, $m
  3,609
  5,429
  5,553
  5,694
  5,853
  6,029
  6,221
  6,431
  6,658
  6,902
  7,165
  7,477
  7,776
  8,094
  8,433
  8,792
  9,173
  9,575
  10,001
  10,451
  10,927
  11,428
  11,957
  12,514
  13,101
  13,719
  14,370
  15,056
  15,777
  16,535
  17,333
Net income, $m
  13,501
  14,677
  15,012
  15,395
  15,824
  16,299
  16,820
  17,387
  18,001
  18,662
  19,371
  20,215
  21,024
  21,885
  22,800
  23,771
  24,800
  25,889
  27,041
  28,258
  29,542
  30,898
  32,327
  33,834
  35,421
  37,093
  38,853
  40,706
  42,655
  44,706
  46,864

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  11,895
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  56,977
  45,991
  47,049
  48,258
  49,615
  51,119
  52,770
  54,567
  56,512
  58,608
  60,857
  63,264
  65,831
  68,565
  71,470
  74,553
  77,821
  81,279
  84,936
  88,801
  92,881
  97,186
  101,727
  106,512
  111,555
  116,865
  122,457
  128,343
  134,536
  141,051
  147,905
Adjusted assets (=assets-cash), $m
  45,082
  45,991
  47,049
  48,258
  49,615
  51,119
  52,770
  54,567
  56,512
  58,608
  60,857
  63,264
  65,831
  68,565
  71,470
  74,553
  77,821
  81,279
  84,936
  88,801
  92,881
  97,186
  101,727
  106,512
  111,555
  116,865
  122,457
  128,343
  134,536
  141,051
  147,905
Revenue / Adjusted assets
  0.674
  0.674
  0.674
  0.674
  0.674
  0.674
  0.674
  0.674
  0.674
  0.674
  0.674
  0.674
  0.674
  0.674
  0.674
  0.674
  0.674
  0.674
  0.674
  0.674
  0.674
  0.674
  0.674
  0.674
  0.674
  0.674
  0.674
  0.674
  0.674
  0.674
  0.674
Average production assets, $m
  10,747
  10,973
  11,226
  11,514
  11,838
  12,197
  12,591
  13,019
  13,484
  13,984
  14,520
  15,094
  15,707
  16,359
  17,053
  17,788
  18,568
  19,393
  20,265
  21,188
  22,161
  23,188
  24,272
  25,413
  26,617
  27,884
  29,218
  30,622
  32,100
  33,654
  35,289
Working capital, $m
  10,370
  -1,550
  -1,586
  -1,626
  -1,672
  -1,723
  -1,778
  -1,839
  -1,904
  -1,975
  -2,051
  -2,132
  -2,219
  -2,311
  -2,409
  -2,512
  -2,623
  -2,739
  -2,862
  -2,993
  -3,130
  -3,275
  -3,428
  -3,589
  -3,759
  -3,938
  -4,127
  -4,325
  -4,534
  -4,753
  -4,984
Total debt, $m
  26,346
  27,118
  28,012
  29,034
  30,181
  31,452
  32,846
  34,365
  36,009
  37,780
  39,681
  41,714
  43,883
  46,193
  48,649
  51,254
  54,014
  56,937
  60,027
  63,293
  66,740
  70,378
  74,215
  78,259
  82,520
  87,007
  91,732
  96,705
  101,939
  107,444
  113,235
Total liabilities, $m
  38,090
  38,862
  39,756
  40,778
  41,925
  43,196
  44,590
  46,109
  47,753
  49,524
  51,425
  53,458
  55,627
  57,937
  60,393
  62,998
  65,758
  68,681
  71,771
  75,037
  78,484
  82,122
  85,959
  90,003
  94,264
  98,751
  103,476
  108,449
  113,683
  119,188
  124,979
Total equity, $m
  18,887
  7,129
  7,293
  7,480
  7,690
  7,924
  8,179
  8,458
  8,759
  9,084
  9,433
  9,806
  10,204
  10,628
  11,078
  11,556
  12,062
  12,598
  13,165
  13,764
  14,397
  15,064
  15,768
  16,509
  17,291
  18,114
  18,981
  19,893
  20,853
  21,863
  22,925
Total liabilities and equity, $m
  56,977
  45,991
  47,049
  48,258
  49,615
  51,120
  52,769
  54,567
  56,512
  58,608
  60,858
  63,264
  65,831
  68,565
  71,471
  74,554
  77,820
  81,279
  84,936
  88,801
  92,881
  97,186
  101,727
  106,512
  111,555
  116,865
  122,457
  128,342
  134,536
  141,051
  147,904
Debt-to-equity ratio
  1.395
  3.800
  3.840
  3.880
  3.920
  3.970
  4.020
  4.060
  4.110
  4.160
  4.210
  4.250
  4.300
  4.350
  4.390
  4.440
  4.480
  4.520
  4.560
  4.600
  4.640
  4.670
  4.710
  4.740
  4.770
  4.800
  4.830
  4.860
  4.890
  4.910
  4.940
Adjusted equity ratio
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  13,501
  14,677
  15,012
  15,395
  15,824
  16,299
  16,820
  17,387
  18,001
  18,662
  19,371
  20,215
  21,024
  21,885
  22,800
  23,771
  24,800
  25,889
  27,041
  28,258
  29,542
  30,898
  32,327
  33,834
  35,421
  37,093
  38,853
  40,706
  42,655
  44,706
  46,864
Depreciation, amort., depletion, $m
  1,158
  1,183
  1,207
  1,235
  1,267
  1,301
  1,340
  1,381
  1,426
  1,475
  1,527
  1,465
  1,525
  1,588
  1,656
  1,727
  1,803
  1,883
  1,968
  2,057
  2,152
  2,251
  2,356
  2,467
  2,584
  2,707
  2,837
  2,973
  3,116
  3,267
  3,426
Funds from operations, $m
  18,031
  15,860
  16,220
  16,630
  17,091
  17,601
  18,160
  18,769
  19,427
  20,137
  20,898
  21,680
  22,549
  23,473
  24,456
  25,498
  26,603
  27,772
  29,008
  30,315
  31,694
  33,149
  34,684
  36,301
  38,005
  39,800
  41,690
  43,679
  45,772
  47,974
  50,290
Change in working capital, $m
  1,362
  -30
  -36
  -41
  -46
  -51
  -56
  -61
  -66
  -71
  -76
  -81
  -87
  -92
  -98
  -104
  -110
  -117
  -123
  -130
  -138
  -145
  -153
  -161
  -170
  -179
  -188
  -198
  -209
  -220
  -231
Cash from operations, $m
  16,669
  15,890
  16,255
  16,671
  17,137
  17,652
  18,216
  18,829
  19,493
  20,207
  20,974
  21,761
  22,635
  23,565
  24,554
  25,602
  26,713
  27,888
  29,132
  30,445
  31,831
  33,294
  34,837
  36,462
  38,175
  39,979
  41,878
  43,877
  45,981
  48,193
  50,521
Maintenance CAPEX, $m
  0
  -1,043
  -1,065
  -1,090
  -1,118
  -1,149
  -1,184
  -1,222
  -1,264
  -1,309
  -1,358
  -1,410
  -1,465
  -1,525
  -1,588
  -1,656
  -1,727
  -1,803
  -1,883
  -1,968
  -2,057
  -2,152
  -2,251
  -2,356
  -2,467
  -2,584
  -2,707
  -2,837
  -2,973
  -3,116
  -3,267
New CAPEX, $m
  -748
  -226
  -252
  -288
  -324
  -359
  -394
  -429
  -464
  -500
  -537
  -574
  -613
  -652
  -693
  -736
  -780
  -825
  -873
  -922
  -974
  -1,027
  -1,083
  -1,142
  -1,203
  -1,267
  -1,334
  -1,404
  -1,478
  -1,555
  -1,635
Cash from investing activities, $m
  -11,985
  -1,269
  -1,317
  -1,378
  -1,442
  -1,508
  -1,578
  -1,651
  -1,728
  -1,809
  -1,895
  -1,984
  -2,078
  -2,177
  -2,281
  -2,392
  -2,507
  -2,628
  -2,756
  -2,890
  -3,031
  -3,179
  -3,334
  -3,498
  -3,670
  -3,851
  -4,041
  -4,241
  -4,451
  -4,671
  -4,902
Free cash flow, $m
  4,684
  14,621
  14,937
  15,293
  15,695
  16,143
  16,638
  17,178
  17,765
  18,398
  19,079
  19,777
  20,557
  21,388
  22,272
  23,211
  24,206
  25,261
  26,376
  27,555
  28,801
  30,115
  31,502
  32,964
  34,505
  36,128
  37,837
  39,636
  41,530
  43,522
  45,618
Issuance/(repayment) of debt, $m
  4,268
  772
  894
  1,022
  1,147
  1,271
  1,395
  1,519
  1,644
  1,771
  1,901
  2,033
  2,170
  2,310
  2,455
  2,605
  2,761
  2,922
  3,090
  3,265
  3,448
  3,638
  3,837
  4,044
  4,261
  4,488
  4,725
  4,973
  5,233
  5,506
  5,791
Issuance/(repurchase) of shares, $m
  -10,793
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -6,892
  772
  894
  1,022
  1,147
  1,271
  1,395
  1,519
  1,644
  1,771
  1,901
  2,033
  2,170
  2,310
  2,455
  2,605
  2,761
  2,922
  3,090
  3,265
  3,448
  3,638
  3,837
  4,044
  4,261
  4,488
  4,725
  4,973
  5,233
  5,506
  5,791
Total cash flow (excl. dividends), $m
  -2,167
  15,393
  15,831
  16,314
  16,842
  17,414
  18,032
  18,697
  19,409
  20,169
  20,980
  21,811
  22,727
  23,698
  24,727
  25,816
  26,967
  28,183
  29,467
  30,821
  32,248
  33,753
  35,339
  37,008
  38,766
  40,615
  42,562
  44,610
  46,763
  49,028
  51,409
Retained Cash Flow (-), $m
  -353
  -137
  -164
  -187
  -210
  -233
  -256
  -279
  -302
  -325
  -349
  -373
  -398
  -424
  -450
  -478
  -506
  -536
  -567
  -599
  -632
  -667
  -704
  -742
  -782
  -823
  -867
  -912
  -960
  -1,010
  -1,062
Prev. year cash balance distribution, $m
 
  11,895
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  27,151
  15,667
  16,127
  16,632
  17,181
  17,776
  18,418
  19,107
  19,844
  20,631
  21,438
  22,329
  23,274
  24,277
  25,338
  26,461
  27,647
  28,900
  30,222
  31,616
  33,086
  34,635
  36,266
  37,984
  39,792
  41,695
  43,697
  45,803
  48,018
  50,347
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  26,032
  14,343
  14,035
  13,694
  13,318
  12,901
  12,443
  11,942
  11,399
  10,816
  10,180
  9,528
  8,849
  8,150
  7,439
  6,724
  6,016
  5,322
  4,653
  4,017
  3,422
  2,874
  2,377
  1,935
  1,548
  1,216
  938
  709
  524
  379
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Gilead Sciences, Inc. is a research-based biopharmaceutical company that discovers, develops and commercializes medicines in areas of unmet medical need. The Company's portfolio of products and pipeline of investigational drugs includes treatments for Human Immunodeficiency Virus/Acquired Immune Deficiency Syndrome (HIV/AIDS), liver diseases, cancer, inflammatory and respiratory diseases and cardiovascular conditions. Its products for HIV/AIDS patients include Descovy, Odefsey, Genvoya, Stribild, Complera/Eviplera, Truvada, Emtriva, Tybost and Vitekta. Its products for patients with liver diseases include Vemlidy, Epclusa, Harvoni, Sovaldi, Viread and Hepsera. It offers Zydelig to patients with hematology/oncology diseases. Its products for patients with various cardiovascular diseases include Letairis, Ranexa and Lexiscan. Its products for various inflammation/respiratory diseases include Cayston and Tamiflu. It had operations in more than 30 countries, as of December 31, 2016.

FINANCIAL RATIOS  of  Gilead Sciences (GILD)

Valuation Ratios
P/E Ratio 7.7
Price to Sales 3.4
Price to Book 5.5
Price to Tangible Book
Price to Cash Flow 6.3
Price to Free Cash Flow 6.6
Growth Rates
Sales Growth Rate -6.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0.1%
Cap. Spend. - 3 Yr. Gr. Rate 31.4%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 139.5%
Total Debt to Equity 139.5%
Interest Coverage 20
Management Effectiveness
Return On Assets 26.1%
Ret/ On Assets - 3 Yr. Avg. 37.4%
Return On Total Capital 31.5%
Ret/ On T. Cap. - 3 Yr. Avg. 45.7%
Return On Equity 72.2%
Return On Equity - 3 Yr. Avg. 89.7%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 86%
Gross Margin - 3 Yr. Avg. 86.2%
EBITDA Margin 63%
EBITDA Margin - 3 Yr. Avg. 66.5%
Operating Margin 58%
Oper. Margin - 3 Yr. Avg. 62.4%
Pre-Tax Margin 56.3%
Pre-Tax Margin - 3 Yr. Avg. 60.8%
Net Profit Margin 44.4%
Net Profit Margin - 3 Yr. Avg. 49.5%
Effective Tax Rate 21.1%
Eff/ Tax Rate - 3 Yr. Avg. 18.8%
Payout Ratio 18.2%

GILD stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the GILD stock intrinsic value calculation we used $30390 million for the last fiscal year's total revenue generated by Gilead Sciences. The default revenue input number comes from 2016 income statement of Gilead Sciences. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our GILD stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for GILD is calculated based on our internal credit rating of Gilead Sciences, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Gilead Sciences.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of GILD stock the variable cost ratio is equal to 32%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for GILD stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.7% for Gilead Sciences.

Corporate tax rate of 27% is the nominal tax rate for Gilead Sciences. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the GILD stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for GILD are equal to 35.4%.

Life of production assets of 10.3 years is the average useful life of capital assets used in Gilead Sciences operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for GILD is equal to -5%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $18887 million for Gilead Sciences - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 1301.8 million for Gilead Sciences is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Gilead Sciences at the current share price and the inputted number of shares is $104.2 billion.

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COMPANY NEWS

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▶ Best Buy: Johnson & Johnson, Pfizer, or Gilead Sciences?   [Oct-01-17 07:03PM  Motley Fool]
▶ Gilead Tumbles On Report HIV-Drug Whistleblower Case Reopened   [04:31PM  Investor's Business Daily]
▶ Kevin Young CBE, Gileads Chief Operating Officer, to Retire   [Sep-27-17 04:30PM  Business Wire]
▶ [$$] Getting Ready for Gilead's CAR-T   [Sep-25-17 03:16PM  Barrons.com]
▶ Oddly, Juno Therapeutics Is Jumping 11.3% Today   [Sep-22-17 04:00PM  Motley Fool]
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Financial statements of GILD
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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