Downgrading Gilead

Yesterday, a sell side analyst upgraded Gilead Sciences. When the stock was $32 two short months ago he thought the stock was a market perform but now that it is more than 25% higher he thinks its a buy. Gilead earns a rather predictable stream of cash, so one would think that a 25% price rise would make the stock less attractive.

Did Gilead discover a new drug that makes the increase in intrinsic value greater than the increase in stock price? No. Has there been a change in interest rates that makes the stream of cash more attractive? No. After being wildly bullish at $32, I am downgrading my view of Gilead Sciences at the current price. I believe the shares are close to fair value. I remain long Gilead stock and short the $38 covered calls.

1 comment:

Anonymous said...

Well, there has been positive news on Gilead's pipeline, most recently Hep C, so some investors and analysts are now behaving as if Gilead once again has a future beyond the cash flows from current products.